(1873) A Treatise On The Law of Usury, Pawns or Pledges and Maritime Loans

I
Cornell University Law Library

The Moak Collection
PURCHASED FOR
The School of Law of Cornell University

And Presented February 14, 1893
IN HEnORY OP
JUDGE DOUGLASS BOARDMAN
FIRST DEAN OF THE SCHOOL
By his Wife and Daughter
A. M. BOARDMAN and ELLEN D. WILLIAMS

Cornell University Library
KF 1036.T98
A treatise on tlie law of usury, pawns or
3 1924 018 849 798

p^ Cornell University
Library
The original of tiiis book is in
tine Cornell University Library.
There are no known copyright restrictions in
the United States on the use of the text.
http://www.archive.org/details/cu31924018849798
:
A TREATISE
ON THE ;
'
, ,
LAW OF USUET,
PAWNS OR PLEDGES,
ANT)
MARITIME LOANS.
By ransom H.XYLEE,
Author of "Amebicaw Ecolestabtioal Law," " Commkn-taeies oh" the Law of Lnfakot'
AND COVESTTrBEt'' "A TbBATISB ON THE REMEDY BT EJECTMENT, AND THE
Law of Adtebsb Enjoyment," etc., bto.
ALBANY
WÎHiIilAM: GrOXTIilD & S03S",
1873,
Entered accoi'diDg to Act of CongreBS, m lae year eigUeen hundred and seventy-three, by
wiLLIAJtt GOULD & SON,
in the office of the Librarian of CongreBS, at Washington.
THE ABGUS COMPANT,

PRINTERS AHI> STERE0TYPEB3.
AXBANT, N. T.
;
PREFACE.
The following treatise has been prepared under an impression

that a work of the kind was required for the public convenience.
The subjects which are treated 've regarded with interest in all
parts of the American Union. So long as usury laws exist, it is
of the utmost importance that they bdj understood. There is not

at present an American work upon "^sury, in which the general
subject is discussed. Mr. Blydenbui^h, some thirty years ago,
brought out a small work on the law of usury, but he expressly
declared that his work was designed only as a supplement to the
English works of Powell, Comyn, and Ord ; and, since that, two or
three other brief essays have appeared, giving the history of usury,
or discussing the policy of usury laws, without any attempt to
illustrate or explain what the law is. Within^ the last few years,
the statutes of the several States upon the subject of usury have
undergone considerable change, and in a few of the States laws
against usury have been abolished altogether ; and, in the mean-
time, many decisions have been pronounced by the courts bearing
upon the subject. These circumstances, it is believed, have made
it the more necessary that a new work should be prepared, show-
ing, what the law really is, and where it may be found. Some
have supposed that in those States where the effect of usury is not
to nullify the contract infected by it, but merely to make it void as
to the extra interest, and the like, the subject is of but little or no
importance. This is doubtless a mistake. Wherever usury laws
exist, in any form, the subject is of importance, To illustrate
4 PREFACE. '
In the State of Pennsylvania, the effect of usury in an instrumeut
is merely to defeat the collection of the usurious interest. In a
case, referred to and examined in this work, the plaintiff sought to
foreclose a mortgage made to secure $43,200, with legal interest,
and the defense of usury was interposed. The jury found that
the amount unpaid on the mortgage was $42,682.87, but that, in
fact, the mortgage was given to secure the payment of a loan at a
rate of interest exceeding that established by law, and that, by

deducting such excess, the amount actually unpaid was only
$25,799.24. The question was fairly presented and litigated,

whether the transaction was usurious or not, and it was found that
it was usurious, and the result was that a deduction was made from
the face of the mortgage of $16,883.63; demonstrating the
necessity of a knowledge of the principles by which the question
of usury is to be determined, even in those States where the effect
of the law is simply to deprive the party of the right to collect

the excessive interest. The probability is, that but few of the
States will very soon try the experiment of doing without laws
against usury in some form, and so long as such laws exist, a cor-
rect understanding of them is of great importance to the com-

mercial world.
In respect to the contract of pawn or pledge, it may be safely
affirmed that few subjects connected with the commerce of the

country are of more general importance than the law regulating
the subject of pledges or pawns. Every business man has more
ox less to do with the subject, and yet there is scarcely any com-
mercial subject less generally understood, or less adequately ascer-
tained. Here, again, we are without the aid of a single American

work. A few brief paragraphs are devoted to the subject in the
excellent treatises of Judge Story and Mr. Edwards on Bailments,
but no work has heretofore appeared in which the subject has been
specially treated. This want has been seriously felt, and hence
the importance of the discussion in this work,
;
PREFACE.
So, also, the subject of maritime loans is of marked interest
especially to the members of the legal profession practicing in the
great commercial centers of our country. It is true that the sub-
ject has been discussed in works heretofore published ; but a con-

siderable time has elapsed since those works first made their
appearance, during which many important decisions have been
made upon the subject, making it necessary that the whole matter
should be newly presented.

I have endeavored in this work to examine, carefully and fully,
the several subjects which I have treated, and bring out with clear-
ness and accuracy the law and principles by which they are
respectively governed. Part I occupies 446 pages, in which the
subject of usury is exhaustively treated, the constituents of usury
clearly defined, the statutes in force in the several States relating
to interest succinctly stated, and the principal authorities upon

the subject, both in England and this country, thoroughly con-
sidered, and the doctrine of the cases accurately stated ; thereby

furnishing a precedent for almost every conceivable usurious case
which may arise. Part II consists of 233 pages, in which the

contract of pawn or pledge is fully considered, the proper parties
to a pawh or pledge, their rights, obligations and liabilities, and

the final disposition of the subject of the pawn or pledge, are
designed to be plainly and accurately stated and defined. Part
III consists of little less than 100 pages, and is devoted to a con-
cise discussion of the subject of maritime loans, and the law relat-
ing to bottomry and respondentia; and the doctrine of the

authorities upon the subject is briefly laid down.
The object of this work is to bring within a limited compass
the law relating to the important subjects considered ; and to this

end I have endeavored carefully to examine all the statutes in
force, and the decisions of the courts bearing upon those subjects
down to the present time, and faithfully give their spirit and
import, so that they may be readily comprehended. The subjects

6 PREFACE.
of the work may be regarded as somewhat cognate, and as neither
is sufficiently prolific of itself to furnish material for a book of

convenient size, I have thought it best to group the whole together
in one volume, and thus produce a book of proper dimensions for

use. Recognizing the fact that a good index adds greatly to the
value of a book, I have given to the work a full and complete,

though not prolix, alphabetical index, which I trust may be found
convenient and useful. It has sometimes been remarked, that bur
modem law books are not trustworthy as authority, and that it is
never safe to rely upon-them without consulting the cases. This,
surely, need not be the case, and I flatter myself that I have been
enabled to produce a book which may be trusted; and for the
reason, that I have been careful to fortify my statements by a
reference to the authority upon which they have been made, and
in no case to make a statement not sanctioned by competent
authority. I have taken liberties with the standard elementary
works upon the subjects discussed, but where I have availed

myself of the labor of others, I have endeavored, so far as was
practicable, to acknowledge the source to which I was indebted.
I trust that the work may prove of service to my professional
brethren, and an essential acquisition to the library of every
practitioner.
Deoembek, 1872.
TABLE OF CONTENTS.
PART I.
OF THE LAW OF USURY
CHAPTER I.
PAOE.
Definitions of Usury and Interest — The words differ in their meaning —
Opinions respecting the Morality of Taking Interest — Anciently, the
Practice Condemned — At Present, it is Approved 35
CHAPTEE IL
History of Usury in Europe and Great Britain — Denunciations by the
Early Writers of Usurers and their Practice 40
CHAPTEE III.
History of Usury in the Colonies and in the American States 49
CHAPTEE IV.
The Policy and Propriety of Usury Laws — Arguments and Opinions upon
the subject 66
O TABLE OF- VONTMNTS.
CHAPTEE V.
PAGE,
The Statutes in force in respect to Interest and Usury in the States of New
York, Vermont, New Hampshire, Maine, Massachusetts, Rhode Island,
Connecticut, New Jersey, Delaware, Pennsylvania, Ohio and Michigan —
Table of the Rates of Interest in those States respectively 64
CHAPTEK VI.
The Statutes in force in respect to Interest and Usury in the remaining

States of Maryland, Virginia, "West Virginia, North Carolina, South
Carolina, Georgia, Florida, Alabama, Mississippi, Tennessee, Louisiana,
Arjsansas, Texas, California, Oregon, Nevada, Nebraska, Kansas, Mis-
souri, Iowa, Minnesota, Wisconsin, Illinois, Indiana and Kentucky —

Federal Statute on the subject for National Banks — Table of the Rates
of Interest in those States considered in this Chapter 71
CHAPTEE VII.
Of the particular Statutes to be applied in cases of alleged Usury — Conlflict

of Laws on the subject — Rules by which the question is determined .... 78
CHAPTEE VIII.
The Constituents of Usury — There must be a Loan, express or implied —

There must be an Agreement that the money lent shall or may be
returned
CHAPTEE IX.
Constituents of Usury — Illegal Interest must be reserved or taken — There

must be a Corrupt Agreement to take more than the legal rate. 101
CHAPTEE X.
Transactions not tainted by Usury — Certain rules applicable to Usury —

Contracts not usurious because there is no Loan — Elements of a Loan —
Sales of credit — Guaranties 110
TABLE OF CONTENTS. 9
CHAPTEK XL
PAGE.
Transactions not usurious for the want of the element of a Loan — Con-
tracts in the form of compensation for service — Charges for reasonable
commissions on making Loan — Loans upon condition that debt of third

person be assumed, or that a subsisting debt of the borrower be paid. . . . 130
CHAPTER XII.
Transactions not usurious — Compensation taken on account of exchange —

Making deposits in considerationof a Loan — Taking Interest in
advance ; 143
CHAPTEE XIII.
Transactions not usurious — Bonus to agents for negotiating Loan 156
CHAPTER XIY.
Transactions not usurious — Cases in which the money loaned not agi'eed
is
to be returned at all events — Bottomry contracts — Contracts in the form

of a post obit — Transactions between partners 179
CHAPTER XY.
Transactions not usurious — Contracts in the form of an annuity — Same in
form of a rent-charge — General considerations 188
CHAPTER XVI.
Transactions not usurious — Interest in the nature of a penalty, or where
the same may be
avoided by prompt payment of the principal Trans- —
actions where stocks are loaned or transferred —
Sales of depreciated
securities , 304
2
XO TABLE Of CONTENTS.
CHAPTER XVII.
FAOE.
Transactions not usurious — Cases where Usury lias been incurred by mis-
take
—"Where the excessive Interest is reserved or paid as a gift — Of
compound Interest, semi-annual Interest and the like , 239
CHAPTEE XVIII.
Transactions not usurious — Loan of chattels 245
CHAPTER XIX.
Transactions not usurious — Miscellaneous cases held to be free from the

taint of Usury ^ 255
CHAPTER XX.
Transactions held to be usurious — Cases of alleged mistake — Cases of
purchase of negotiable paper — Mistake in construction of statute 274
CHAPTER XXI.
Transactions held to be usurious -^Where there was an alleged hazard
attending the principal — Cases of sea risk — Cases between copartners —

Contracts in the form of a post obit — Contracts in the form of an
annuity — Other alleged risks. , 284
CHAPTER XXII.
Transactions held tobe usurious-^ Cases of alleged penalty — Taking

Interest in advance — Antedated instruments — Cases in which goods are
advanced instead of money , 297
TASLE Of CONTMNTS. 11
CHAPTEE XXIII.
FAQE.
Transactions held to be usurious— Cases wliere stock is transferred—
Warrants of a municipal corporation — Depreciated bank notes — Certi-

ficates of trust and deposit— Exchange of drafts and obligations 309
CHAPTER XXIV.
Transactions held to be usurious — Cases where something besides Interest
is paid for the Loan — Extra sum paid for brokerage — Extra sum paid
as commission — Extra sum paid as excliange 334
CHAPTER XXV.
Transactions held to be usurious — Cases where exorbitant Interest is taken
under the form of discounts — Cases of contingency or prompt payment, 388
CHAPTER XXVI.
Transactions held to be usurious — Cases of a miscellaneous nature 351
CHAPTER XXVII.
General Summary of the cases examined — The Doctrine of the Courts in
respect to'alleged usurious transactions 363
CHAPTEE XXVIII.
How Usury Laws are construed by judicial tribunals — difference between

remedial and penal Statutes — Usifry Laws sometimes penal and some-
times remedial, and are to be construed accordingly — The construction
"must be sensible — Usury Laws never, retroactive 372

12 TABLE OF CONTENTS.
CHAPTER XXIX.
PASE.
Effect of Usury upon the contract or security tainted by it — When the
usurious security is void as between the parties — When as to subsequent

holders or assignees 381
CHAPTER XXX.
Effect of Usury upon prior and subsequent securities, collateral to the con-
tract infected with the original taint — Reforming the original contract —
Judgment upon the usurious transaction, and the like 393
CHAPTER XXXI.
Usury as a defense to an action — Who may interpose the defense to
Usury — None but the borrower or those in privity with him can set up
the defense — Parties may also be estopped of their light to interpose the
defense 403
CHAPTER XXXII.
The Penalties of Usury, and actions at law against the Usurer — The action
at law to recover back usurious Interest — When property deposited or
transferred upon usurious contracts may be recovered 421
CHAPTER XXXIII.
Relief in Equity in cases of Usury — When the proceedings may be main-

tained — Q-eneral rules upon the subject 435
CHAPTER XXXIV.
The practice in cases o£ Usury — Pleadings in such cases, both in Law and
Equity — Amendments of tl ^ pleadings in these casss 450
CHAPTER XXXV.
PASE.
Compouncling a penal action for Usury— Trial of an action involving
Usury — Competency cf the witnesses and the evidence in the action —

The verdict and judgment— Opening default and granting new trials —
The consequences of the trial in penal actions for Usury, 465
CHAPTEE XXXYI.
Usury as a crime— The offense at Common Law — The by oflFense
Statute — "When the offense complete

is — The indictment and evidence, 474
FART II.
OF THE LAW OF PAWNS OR PLEDGES.
CHAPTER XXXVII.
Definition of a -Pledge or Pawn — History of the contract of pledging or
pawning personal property as a security for debt 481
CHAPTER XXXVIII.
The contract ot pawning or pledging—What is a Pawn or Pledge —What
may and what may not be pawned or pledged — General rules upon the
subject 493
CHAPTER XXXIX.
The claim to be secured by a Pawn or Pledge — The delivery of the thing
pledged — Po_3session of the Pledge must be continued in the Pledgee. . . , 504
1^4 TABIjB OF CONTEN'TS.
OHAPTER XL.
PAGE.
The person of the Pawnor or Pledgor — The power of minors, married

women, factors and other agents to make a Pledge or Pawn 420
CHAPTER XLI.
The title of the Pawnor or Pledgor, and his property in the thing pledged
or pawned — His obligations and duties in respect to the thing pawned or

433
CHAPTER XLII.
The rights of the Pawnor or Pledgor in respect to the property pledged —

The Pledgor's right to transfer his interest in the thing pledged — His
right to redeem the article pledged — The extinguishment of the contract
of pledge 444
CHAPTER XLin.
The Pledgee's property in the Pledge or Pawn — Rights of the Pledgee in
respect to the Pledge before it is required to be redeemed 557
CHAPTER XLIY.
Eights of vthe Pledgee to enforce his claim by disposing of the property
pledged after the claim has matured — Negotiable securities to be col-
lected and the money applied to pay the debt 576
CHAPTER XLV.
Rights of the Pledgee after the claim has matured — In case goods or per-
sonal property are pledged, the Pledge must be sold— "When and how
the Pledge to be sold — Rights of Pledgee in case of Pledge to secure
is
Illegal — Extent of the Pledgee's claim in th^ Pledge— Pledgee's

claim
rights when several things are pledged —Waiver of errors in the sale of
the Pledge 581

,
CHAPTER XLVI.
PAO£,
Rights of the Pledgee after sale of the Pledge — Distribution of the pro-
ceeds of the sale — Liabilities of Pledgee in respect to negotiable paper —

His liability to account for the property in pledge 601
CHAPTER XLVII.
Duties and obligations of the Pledgee in respect to the property pledged — •
Care and diligence required — Presumptions in case of theft — Meaning

of ordinary care, as understood in such cases , 615
CHAPTER XL VIII.
Duties and obligations of the Pledgee upon the termination of the Pledge —
Liability upon refiisal or neglect to restore the Pledge — Principles
governing the question of the pawnee's liability for the loss of the Pawn, 027
CHAPTER XLIX.
Remedies of the Pledgor in respect to the Pledge — When he may bring

his action of Trover or Replevin — His action in Equity to redeem — His
action when the pledge is without legal consideration 642
CHAPTER L.
The operation of Bankrupt Laws in cases of Pledge — The doctrine of the

English authorities upon the subject — The doctrine of the American
cases on the point 65t5
CHAPTER LI.
Effect of the death of the parties to a Pledge— Means of deteimining the

party entitled to the property pledged in doubtful cases — Some miscel-
laneous points in respect to Pledges referred to 668
1Q TASLE OF CONTENTS.
CHAPTEE LII.
PAGE.
Statutory provisions in respect to the subject of Pawns or Pledges. — Tlie

English Pawnbrokers' act — Laws of New York relating to pledges and
the business of Pawnbroking 684
CHAPTER LIII.
Statutory provisions in respect to the subject of Pawns or Pledges—Laws

of the New England States upon the subject — Decisions of the Courts
, under the Statutes 694
CHAPTEE LIY.
Statutory provisions in respect to the subject of Pawns or Pledges — Laws

of the Territory of Arizona relating to Pledges and Pawnbroking — Laws
of the several States upon the subject, excepting those of New York and
the New England States, which are considered in the two preceding
chapters '
699
PART III.
THE LA\A^ OF MARITIME LOANS.
CHAPTEE LV.
Antiquity of Maritime Loans — Texts of the Homan Law relating to the

subject — Definition, legality and nature of a Mai'ilime Loan — The con-
stituents of a Bottomry contract — Difference between Bottomry, Loan,
Partnership and Insurance — Form of a contract of Maritime Loan 715

CHAPTER LVI.
FAGS.
Maritime Interest— General rules in respect to it — Eate of Maritime
Interest— Common legal interest— The French decisions upon the sub-
ject 721
CHAPTER LVII.
Who may be parties to a Maritime Loan —When the owner is bound by

the acts of the master of a vessel— Of Bottomry by the master— The
same by the owner of a vessel — Difference between Bottomry and
Bespondeutia 728
CHAPTER LVIII.
What may be pledged in a Maritime Loan —What may be lent at Maritime

risk —
Loan, how to be employed —
Consequence if there happens to be
no risk — The case of a fraudulent borrower — Proof of the shipment —
Loan, how employed 742
CHAPTER LIX.
Risks and losses borne by the lenders in cases of Maritime Loan — Losses
and average occasioned liy the perils of the sea — Lenders bear only the
risks of the sea — Loan for the voyage or a limited time — Places of
peril and change of the ship 749
CHAPTER LX.
The nature of Bottomry — Where and in what manner Maritime
bills
moneys — Limitations of actions for the recovery of the

are to be paid
same — Rule in respect to security in such cases — Extinction of the con-

tract of Bottomry — Cases illustrating the subject : 755
CHAPTER LXI.
Lien of the lender upon the effects at risk — Priority of liens on the ship —
Priority of liens upon the cargo — Principles applicable to Maritime liens, 766
3
18 TABLJS OF CONTENTS.
CHAPTEE LXII.
PAGE.
The Bottomiy bond — Form, interpretation and of — Requisites of
effect it
the contract of Bottomry — Other security may be taken with the Bot-
tomry contract — The lender's remedy in case of Maritime Loans — The
form of the decree in Admiralty 776
CHAPTEE LXin.
Some points respecting Maritime Loans settled by authority, promiscu-
ously stated 785
CHAPTEE LXIV.
Translation of the second title of the twenty-second book of the Digests, and
of the twenty-third title of the fourth book of the Code, each entitled De
Nautico Poenore— Translation of the fifth title of the third book of the
French Ordinance concerning the Marine ; . 798
.
INDEX TO CASES CITED.
A. PAOB. PASE,
Abeyv. Eapelye 344,350, 387 Bailey Colby
V. 697
Abraham v. Brown 467 Bailey V. Tucker 565
Adams v. Clazton 665 Bakewellv. Ellsworth 538
Agnew V. McElhan 478 Baldwin, Bx parte 663
Agricnltoral Bank v. Bissell 166 Baldwin v. Lamb 126
Ainsworth V. Bowen 618 Ballard v. Addy 230
Aldrich Reynolds
v. 234 Balmev. Wombough 85
Allen T.Dykera 558,587. 689 Baltimore Ins. Co. v. Dalrymple 597
Allen V. Fergnson 457 Bancroft v. Coueen 530
Allen Mapes
V. 473 Bandel y. Isaac 460
Allen V. Newbniy 785 Bank of Old Bominion v. Debuque, etc.,
Ames V. Wentworth 667 R.S.CO 614

Amphlets, Ex parte 656 BanksT. McLellan 414
Anasfasia, Freight Money ot 739, 774 Banks V. Van Antwerp 264
Anderson v. Maltby 186 Barbara, The 785
Andrews v. Herriot 81 Barbe, qui tam, v. Parker 453
Andrews v. Jones 130 Barclay, Ex parte 664
Andrews v. Pond 79, 88, 147 Barclay V. Walmsby 256
Androscoggin E. E. Co. v. Auburn Bank.. 576 Barkus v. Calhoun 406
AnnC. Piatt, The 739,776, 786 Barnard, Bx parte 664
Anonymous 231 Bamet v. Stone 363
Appleton V. Crowninshield 764, 765 Barr v. Kane 684
Artenm v. Williams 661 Barrettv. Cole 519
Archer V. Putnam 313 Barretto v. Snowden 160
Archibald v. Thomas 233, 236 Barrow V. Coles 567
Arendale v. Morgan 620, 556 Barrow v. Paxton 533
Ariadne, The 788 Barrow v. Rhinelander 412, 613
Armon v. Delamirlc 643 Bartholbmew V. Taw 441
Atkinson v. Manks 671 Bartlett v. Johnson 6!2
Atlantic Ins. Co. v. Conrad '
. . . . 775, 781 Bai'tlett V. Viner 374
Atlantic, Th« 739 Bassange v. Ross 354
Atlas.The 796 BattleV. Shute 430
Anburtv.Maze 374 Battyv.Lloyd 179
Augusta, Bank of, T. Earle 80 Baxter Buck
v. 159, 170, 332
Augusta, The Baxter v. Fanlam 686
788, 794 ,
Aurora v. Cobb 676 Beach t. Fulton Bank , 464

Aurora, The 731 Beadle V. Munson , 141
Austin v. Chittenden 410
Beardslee v. Eichardson 638
Austin V. Fuller 469 Beckwithv. Windsor Mannf. Co.,..,. 125, 141
Austin V. Harrington Bedell t. Hoffman 671
170, 332
Bedford, The Duke of , 785
Bedo T. Sanderson 324
Beemanr. Lawton 519
B. Beetev. Bidgood 114
Belfast, The 785
Badger, Ex parte. 663 Belgin v. The Sloop Rainbow ^ 741
Badlam t. Uaker. 697 Bell T. Cfilhown g26
20 INDEX TO OASES CITED.
PASE.
BeUT.Day 169, 170 Brown T. Waters 890
BcUv.Hnnt 671 Brownell V. Hawkins 557
BenT.Kice 847, 268 Brammel v. Enders 186
BeUv. Scott 273 Brysonv. Eayner 597
Bellingerv. Edwards 339 BuckT. Fulton Bank 472
Belmont Branch Bank t. Hoge 418 Buckingham T. McLean 145
Bennett, Ez parte 660 Buckley v.GnUdbank 106, 230
Berdan V. Sedgwick 408, 418 Bucklin V.Millard 108, 831
Berlin 7. Eddy 612 Bullard T. Eaynor 412, 414, 439
Best T. Hayes 673 BullockT. Boyd 418
Bevan, Ex parte, .- 241 Burbridge V. Cotton 188
Billingsbyv. Dean 141, 21B Burden Parry
Y. 139
Billingtonv, Wagoner 409 BurdnsantT. Commercial Bank of Natchez, 314
Smith
Bills V. 662 Burke v. Avery 412
Birdwoodv. Raphael 664 Burke v. Parker 308
BissellT. Kellogg 446 Burke v. The M. P. Eich 734, 735, 768, 775
Blackv. Hightown 473 Burnett, Ex parte 6S7
Blaine v. The Ship Charles Carter .... 770, 771 Bursley V. Bignold 374
Blandy v. Allan 630 Burt V.Baker 467
Blascom v. Broadway Bank 509 Burton V. Baker 120
Blexamv. Sannders 561 Busley V.Finn 237
Block V. State 469 Bush V. Buckingham 106, 230
Blodgett V. Wadhams 359 Bushv. Fearon 780
Bloomfield v. The Southern Ins. Co 781 Bush V.Lyon 546
Bpdby V. Keynolds 643 Butler V. Miller 551
Bodenhamner v. Newson 519 Butterworthv. O'Briau 425
Bolander v. Getz 667 Bntterworth y. Pearce 386
Boldero v. Jackson 312 Button, tu re., Clanghton 659
Bonner v. Gregg 467 Button V. Dawnham 185, 718
Bonsey v. Aunce 518 Button V. Downholm 286
Booth V. Cook 108, 231 ButtsT.Bacon ^ 348
Booth V. Swezey 261, 470
Borrodaile, qui tarn, y. Middleton 453
Boston, The 731
Botsford V. Sanford 898
Bottv. McCoy 525
Boughton T. Bruce '.
434 Cabot Bank V. Badman 666
ôwie v. Napier 524 Cabot, The 771
Bowman v. Malcolm 662 Cabotv. Walker 248
Bpyerv. Edwards 83 Cadyv.Potter 673
Bradbury V. Waginhorst 380 Caiuv.Gimon 410
Braddock v. Smith 673 CaUahanv. Shaw 348, 421
Bradgerv. Shaw...; 661 Campbell v. Jones 602
. Bfakely V. Tuttle ggo Campbellv. McHarg 848
Brannockv. Brannock 400 Campbell V. Parker 676
Brassv. Worth 593 Campbell v. Sloan 402
BraynardT. Hoppock 288 Cannon v. Bryer 374
•^rewster v. Hartley 508 Garden v. Jvnes 621
Bridge T. Hubbard 347,897, 405 Garden V. Kelly 413
Bfirikenhoffv. Poote 347 Carlisle V. Gray 425
Brogden V. Walker 681 Carlisle, qui tarn, vr Treara 452
Brolesky V. Miller 305 Garrington v. Pratt 776
Bromley v. Child 663 Cartwright v. Wilmerding 516
Brooksv. Ayery
112i 407 Caruthers V. Humphrey 461
Brown v. Barkham 206 Castle, Case of 475
Brown v. Bunals 649 Catharine, The 790, 795
Brown v. Ward 586 Oatlln V. Qunter 462, 470
Brown V. Warren 609
Caurey V. Yates 658
INDEX TO CASUS CITED. 21
PAGE. PASE.
CavaneBsv, Nay... 426 Cooper v.WUlmatt 636, 643
CayngaCo. Bankv. Hnnt 152, 164 Cope V. Aldln 90
Central Bank T. St. John 155 Corcoran V. Powers 318

Chadbonrav. Watts 397 Coming V. Sibley 457
Chamberlain V. Dempsey 414, 439 Coming, Ex parte 666
Chamberlain v. McClong 361 Cortelyou v. Lansing 533, 647, 646, 670
Chamberlin V. Townsend. .'. . 419 Corvlev. Harris 687, 686
Chambersbnrg Ins. Co. T. Smith 680 Coster y.Dilworth 159.
Chapman v. Brooks 675 Cothrel v. Harrington 191
Chapman v. Clongh 607 Cottony. Dunham 98

Chapman v. Gale 697 Couslandy. Davis ".
— 655
Chapman t. Robertson 386 Crane y. Hendricks 94,120, 122
Chapman v. Turner 648 Crane v. Prince 271
Chatham Bank V. Betts 132 Cranesleyy. Thornton 672
Chenango Bank t. Cnrtiss 217 Crawford y. Johnson 1 114
Chester V. Kingston Bank 620 Crawford v. The Wmiam Fenn 733
Chesterfield T. Janssen 182, 193, 219 Crescent City Bank y. Carpenter 675
Childers v. Dean 109, 236 Crlppin y. Heermance 399
Chinn V. Mitchell 400, 429, 441 Crockery. Colwell 274
Christie, Ex parte 666, 667 Crocker v. Crocker 590
ChurchiU T.Hunt 417 Crowell v. Delaplaine 399
Circassian, The 736 Gumming y. Brown 567
CityBankv. Perkins 679 Cummings y. Williams ,... 250, 252
City SavingsBank y. Bidwell 85, 86, 87 Cnmmingsy. Wire 326
Clapp V- Hanson 388 Cunningham v. Hall. ; 428
Clark V. Dearborn 405 Curtis V. Leavitt £.,417, 698
Clark -V. Eamshaw 627 Curtis y. Martin 459
Clark Hastings
V. 461 Cnshman v.Hayes 597
Clarkv. Shee 49 Cutcher v. Coleman 410
Clark T. Sheehan 143 Cuthbert y. Haley 234,339, 394
Clark V. Sisson 421 Cutlery. How 97, 211
Cleveland v; Loder , 327 Cutler y. Johnson 97
Cleveland v. State Bank 661 CuUer y. Wright 88, 114, 459
Cobbv. Titus 129 Cuyler y. Sanf ord : 153
Cockey v. Forrest 338, 344, 387
Codd V. Eathbone 264
Coggs V. Bernard, 494, 663, 617, 622, 626, 627
637, 639, 683 D.
Coit Humbert
V. 647
Coker V.Guy 107 Dabneyy. Green 681
Cole V. Savage 406 Dagal v. Simmons 463
Collier v. Nevlll 284, 386 DagneU V. Wigley 157, 160
Collins v. Makepeace 461 Danbyv.Lamb 645
Columbia, etc.. Ass. v. Bellinger 313 Daniels, Ex parte 374
Commercial Bank of New Orleans v. Martin, 610 Davenport, Ex parte 657
Commonwealth v. Frost 468, 471 Davis V. Pink 596
Comstock v. Smith 599 Davis y. Garr. '. 268
Condit V. Baldwin 104, 162, 164, 170 Davis V. Leslie 782
Connecticut v. Jackson 243 Dayv. Swift 619
Conoverv. Van Mater 171 Dazier v. Bray 473
Conrad v. Atlantic Ins. Co 605, 749 Dean v. James 660
Conyngham, Appeal of 696 Deanv. Keate 636
Cook V. Bank of Lexington 314 Deever y. The Steamer Hope 784
Cookv. Barnes 378, 400 De Forest V. Story 134, 141
Cook v. Dyer 409 Delano v. Rood 304
Cook, In Matter of 666 Delaware Ins. Co, Archer
v. 779
Cooper V. Benton 626 Demandray v. Metcalf 648, 648, 669
Cooper V. Ray 619 Demart v. Masser 613
Cooper v. Tappan ,. 289, 447 Denn v. Dodds 399
22 INDEX TO CASES CITED.
PAGE. •• PASE,
Denyeon T.Botha 527 Elliot T.Lynch 504
Depay V.Clark 580, 646 Elliot V.Wood 394
Depuyv. Humphrey 384 Ellis, Ex parte 663
I>eBbrough v. Harris 673 Ellis V. Wans 394
De Tasted, Ex parte 659 Elmer V. Oakley 169
De Wolf v. Johnson 89 Ely V. McClurg 360
Dm V. Bllicott 379 Emancipation, The 727, 788, 795
Diller v. Bunbaker 596 Eneas v. The Charlotte Minerva 738, 752
Dixv. Tally 580 Esmay y. Fanning 633
DixT. Van Wjck 406, 415 Esterly, Appeal of 380
Dixie, Wallaston, Case of 456 Evans V. Freeman 526
Doakv.Bankof the State 648 Evans V. Martlett 566
Doak V. Snapp 228 Evans V, Negley 289, 361
Dobson, Ex parte 659 Ewlng V. Howard 463
Donald V. Suckling.' 572 Exeter Bank V. Gordon 697
Donohoe v. Gamble 680
Dooman V. Jenkins 635, 636
Dowdall V. Lenox ; 98
Dowev. Schutt 344, 419
iDowell v. Vannoy 354, 471
Dowler v. Cnshman '667 Fairhaven, IThe 792
Downes, Ex parte 657 Faithful,The 797
Dowthorpc, The 793 Farmer's Loan and T. Co, v. Carroll 317
Draco, The 788, 739, 752, 782, 787 Farmers' and Mechanics' Bank v. Joslyn.. 398
Drake v. Latham 380 Farr v. Ward 672
Draper v. Emerson 410 Faulknerv. Hill 605
Drew T. Power 296 Fawcettv. Feame 662
Dry Dock Bank v. Am. Life Ins. and T. Co., 121 Fay V, Grimstead 463
307, 367 Fayv.Lovejoy „. 237, 430
Duell v. Cndlipp 560 Fellows V. Commissioners, etc, of Oneida, 165
Dunham v. Dey 272 Ferguson v. Hamilton." 419
Dunham T. Gould 43, 64, 323 Ferguson T. Spring 198
Dnnningv. Merrill 346, 396 Ferguson V. Sntphen 305
Dunscomb t> Bunker 349, 388, 404 Ferrallv. Shaen 339
Durant v. Einstein 652 Ferrierv. Scott's Adm'rs 355
Durham v. Tucker • 461 Ferris v. Cravpford 4Q8
Dnrkeev. City Bank 336, 458
Fielder v. Vamer 407
Dyett, In Matter of 613 Finch, Case of 189
Dykers v. Allen 689 Finn v. Brittleston 636
Dymonds v. Cockrill 191 Finuecane v. Small 624, 625, 639
Finney v. Ackerman 380
FJrst, etc., Bankv.Nelson 508
First National Bank V. Owen 254
First National Bank of Whitehall v.
E.
Lamb 91^ 92
Fisher V. Anderson S14
Eagle Bank of Kochester t. Rigney 163 Fishery. Bradford 681
Eagleson v. Shotwell 301 Fisher V, Fisher 58I
Eastman v. Avery ..^^ 519 Fitch V. Rochef ort 688, 690
East Elver Bank v. Hoyt 335 Fitzsimmons v. Baum 871, 362
Eaton V. Alger 138 Flarty v. Odbum 493
Edhel V. Stamford 400 Flecknor v. United States Bank 156
Edward Oliver, The Flemming
793 v. MuUegan 93
Edwards v. Skering 348 Fletcher v. Dickinson ggg
Ehringham V. Ford 354 Fletcher v. Heath 525, 530
Eichelberger v. Murdock 599 Fletcher V. Tayleur 645
Eldridge V. Reed igg Fletcher v. Troy Savings Bank 671
Elephanta, The
7g6 Flight V. Chaplin 134
Elliot V. Armstrong
g46 Flint V. Schomberg 138
INDEX TO CASES CITED. 23
PASE. PAQB.
Flowneyv. Milling... 597 Goss v. Emerson 697
Flowers V. Sproule 648 Gould V. Homer 463
ffloyer V.Edwards 807, 365 Gower v. Carter ^14
Foltzv.May 340 GrandGulf Bank V. Archer 314
Poote V. Brown 612 GrantV. Holdeu 609
Foote T. Storrs 636 Grantham v. Hawley 506
Forbes T. Brig Hannah 717 Grapeshot, The 735
Foster t. Essex Bank 6S5 Gratitudine, The 741
Foster, j:x parte 667 Gray v. Brown 409
Fonntainv. Grymes 193 Greeley V. -Smith 777, 782
Foxv.Holt 731 Greeley v. Waterhouse 775
Franklin T. Neate 636, 642 Green V. Graham 697
Franklin Ins, Co. v. Lord 747 Green V.Kemp...' 405
Fredwlck V. Lookup 457 Green V. Morse 413
French V. ShotweU 405 Greenfield v. Dean of Windsor 498
Fuller, Case of 190 Greenwood, Ex parte 657, 658
Falton Bank v. Beach 464 Griflfin v. New Jersey, etc., Co 305
Fnrberv. Stnrmy 673 Grifin V. Eogers 679
Fnmissv. TheMagonn 786 Grigg V. Stoker 174
Griswold v. Jackson 551, 633
Grose, Ex parte 656
G. Gmbb V. Brooke 330

Gunnison v. Gregg 408, 460
Gabhart T. Sorrels 461

Gage Bnckley
V. 553
Gaitten v. Fanners' and Mechanics' Bank
of Georgetown 833
Galloway T. Logan , 325
Galln.Bx parte.. 657, 658 Hadden v. Innes 436
Gambrilv. Doe 141, 214 Halev.Hays , e08
Gardner v. Lachlan 660 Hale v. Hazilton 471
Garnet v.Ferot 206 Hall V. Daggett 187
Garth v. Cooper 348 Hall V. Earnest 283
Gayv. Moss 674 Hall V. Haggart 352
Geffaken v. Slingerland 603 Hall Wilson
V. 35,3
Genet v. Howard 593 Hamburg, The 797

Georgia, Bank of, v. Lewin '.
88 Hamerv. Harrell 98
Gerard, etc., Ins. Co. v. Marr 575 Hamilton V. La Grange 242
Gibb V. Tremont 88 Hamilton V. State Bank '.
595
Gibbs V. The Texas 734, 790 Hamlin v. Fitch 263
Gibson v. Humphrey 644 HS,mmett v. Yea 105, 333, 334
Gibson v. Philadelphia Ins. Co 778 Hammond V. Bangs 396
Gibson v. Stevens 236 Hammond v. Hopping 396, 469
Gifford V. Whitcomb 468 Hardy v. Peyton 631
Gilbert V. Sewels 840 Harger v. McCuUough 132, 327
Gillard v. Brittan 645 Hargreavee V. Hutchinson 431
Gilpin V. Enderley , 187 Harkins V. Peterson 686
Giveans v. McMurtry 448 HaiTington v. Long 501
Gladstone v. Birley ; 511 Harrington v. Snyder 626
Glasfnrd v. Laing 331 Harris v. Packwood 625
Glennie v. Irwin 648 Harris v. Runuals 687
Glynn v. Locke 673 Harrison V. Hannah 346
Gobebchiok, The 782 Harrison, Ex parte 663
Goldsmith v. Brown 129 Harrusharger v. Kinney 471
Goldstein v. Hart 642 Hart V. Draper 465
Goodale v. Richardson 610 Hartley v. Harrison 414
Goodrich v. Bnzzell 381 Hartop Hoare
V. 643
Goodricks v. Taylor , . aoi H^tshoru V. Davenport 44d
24 INDEX TO CASUS CITED.
PAGE. ThSS.
645 Hunter, Ex parte 656
Harvey V. Pocock
559, 648 Hunter, The 786, 788
Haebronck v. Vandervoort
Hurdv.Hunt 260
HaskinB V. Kelly 551, 631
Hurry V. The John and Alice TSl
HaskinBT. Patterson 534
HaBsel, Case of 374 Hutchinson V. Homer 140
Hyatt T. Argenti 695
Hawks V. Drake 593
Hawks v. Henchdifl 609
Hawksv. Weaver 166, 269
Haynes v. Foster 526

Haynesv.Fry 139
Haysv.Eiddle 520
Hayward v. Le Baron 228, 238
Healdv. Carey -635 Indomitable, The 796
Ingallsv.Lee 120
Healing V. Cottrell 635
Eeath V.Cook 236 International Bank v. Bradley 153
Henry v. Bank of Salina 476 Irnhamv. Child 296
Benry V.Eddy 670 Isaaok V. Clarke 622, 636
Herdltv. Nast 448

Herrickv. Jones 94
Herwig v. Oakley 787
Hickman, Succession of 325
Higtamanv. Molloy 655
Hilarity, The 739, 783
Hillegsburg Succession of 618 Jacks V. Nichols 278-280, 336, 337
Hills V. Smitli 697 Jackson v. Butler 649
Hilton V. Waring 679, 611 Jackson V. Dominick 395
Hinton V. Holliday 607 Jackson y. Passitt 419
Hirst V. Peirse 648 Jackson v. Henry 394
Hirstv. TenEyck 648 Jackson Y. Jones 396
Hogan V. Hansley 298 Jackson V. Smith 470
Hoger V. Edwards 364 Jackson V. Shawl 638, 703
Hogg V. Euffner 114 Jackson V. Tnttle 406
Holbrook y. Baker 505 Jacmel Packet, The 731, 735
Holf ord V. Blatchf ord 459 Jacobs V. Latour 556
Holland v. Chambers 473 James v. Jayner 427
Hollenbeckv. Sliults 469. James Warren
v. 505
Holmesv.Hall 680 Jane, The 788
Holmes v. Wetmore k54 Janson v.Lewis 213
Holmes v. Williams 418 Jarvis V. Kogers 524,565,574, 646
Holroyd v. Gwynne 661 Jenkins V. Jones 551
Homes v. Crane 554 Jenkins v. Nat. Village Bank of Bowdoin-
Hope V. Smith 391 ham 621
Hopkins v. Baker 172 Jennison v. Parker 611
Hopley, Ex parte .'
659 Jerusalem, The 770,782, 783
Horton V. Earl of Devon 672 Jewel V. Wright 87
Horton y. Holliday 647 Johnson V. King 94
Horton v. Moot 289 Johnson v. Morley 359
Hosford V.Nichols 459 Johnson v. Shippen 786 -
Houghton V. Payn 391 Johnsonv. Stear 573, 644

Howe V. Parker 538 Jones V. Baldwin 620
Hbwesv.Ball 669 Jones V. Berryhill 240
Howlqnsv. Bennet 18S, 200 Jones V. Gibbons 660
Huling V. Drexel 271 Jones V. Hawkins 680
Humphrey v. Pearce ; 391 Jones V. Hubbard 218
Hunsacker v. Sturges 632 Jones V. Richardson 511
Hunt V. Acre 448 Jonesv. Smith 648
Hunt V. Ten Eyck 622 Joyv.Kent 174
Hunt, Ez parte, re Amer 666 Judyv. Girard 220
PAGE.
K. Paqb.
Lee V. Lelleck 88
BCalorama, The . 733
Kathleen, The V3& Lee, Ex parte 663
Lefarge Horton
V. 410
Kay V. Whitaker 415
Legg Evans
V. 568
Keane v. Brandon .'
427
Keepland, Ex parte. In re Clapham 661 Lelandv. Medora 727, 777
Levy V. Gadsby 106,331, 555

Kellogg V. Adams 402
Kellogg T. Hlckok 243 Lewis V. Graham 614
Lewis V. Hancock 793
Kelly V. Cashing 793
Lewis, Exparte 770
Kemp V. Westhrook, 540, B47, 553, 559, 648, 650
343 Lickbarrowv. Mason 524, 666
Kendall v. Rohcrtaon
243 Lightf oot. In re 663
Kennon V. Dicken
Kensington, Ex parte 658, 664 Lilburne, The 661
Kent V.Walton 233, 387 Lindsay v. Barrow 673

Lindsay v. Sharp 98
Kenyon V. Smith 471
116, 117, 272 Livingston v. Indianapolis Ins. Co 478
Ketchum v. Barber
Kentgen V. Parks 470 Lloydv. Keech 340
396 Lloydv. Scott 94^203,210, 434

Kilbournv. Bradley
Lockley V. Pye 645
Kimball V. Hildreth * 675
Kinder V.Shaw B24 Lockwood V. Ewen 647
Lockwood V. Mitchell 428
King V. Beard 687
Longv. Storie 210
Kingv. Clifton 465
Kingv. Drury 192 Long V. Wharton 174
Long, Case of 466
King V. Green 653
Loomis V. Eaton 406
Kingv. HutchiuB 647
Euddick 610, 680
Louisiana State Bank v. Gaiennie 680
Kiser V.
Loveday, Case of 478
Kitchel V. Schenck 118
Kitchra, Estate of 598 Lovett V. Diinond 406, 410
Knapp V. Grayson 625 Lowv. Prichard 326
Knights V. Putnam 840 Lowv. Waller 300

Knights V. The AttUa 790 Lncketts v. Townsend 594
Kortright v. Cady 551 .Lnln,The 738, 794
Knhnerv. Butler 448 Lushingtou v. Waller 183
Xurz y. Holbrook 463 Lylev.Barker 561
Kyneston v. Crouch 662 Lynde V. Staats 299
L. M.
«
LacMngton, Ex parte 663 Macomber v. Dunham 352, 469

Laddv. Wiggin 409 Macomber v. Parker 510, 512, 654
Lamigov. Gould 184 Maddock V. Hammett 334
Lampleigh v. Braithwaite 544 Maddockv. Eumhall 220
Lane v. Bailey 684 Madonna, The 771
Lane v. Losee 334 Madora, The Ship 771, 788
Lansatt v. Lippencott 524 Maine Bank v. Butts 109, 156, 275
Large v. Passmore 330 Malrs V. Taylor i... 541
Lavinia, The, v. Barclay 729, 734 Maitland v. The Atlantic 776, 777
Law V.Merrill 357 Mangue v. Haringhi 703
Lawley v. Hooper 296 Manners v. Postan 454
Lawrence v. Cowles 215 Manney v. Stockton 429
Lawrence v. Mathews 677 Manning v. Tyler 462
Learoyd V. Bobinson 526 MansBeld V. Ogle 290
Leavittv. De Lang 118 Marine Bank of Chicago v. Wright 679
Le Blanc V. Harrison 824 Markham v. Jaudon 494, 513, 591, 593, 613
Lee V. Baldwin 619 Marsh v. Howe 143, 625
Lee V.Cass 455 Marsh v. Lasher 464
Lee V. Peckham 402 Marsh v. Martindale 894
PAGE. PASE.
Marshall T, Birkensliaw 454 Monroe Bank y. Strong 396
Martin v. Creflltors 676 Moody V. Hawkins 461, 471
Martinv. Foster 123, 856 Moore V. Battle ; 310
Martin V. Eeid 683 Moore v. Howland 95, 117
Martinv. Somerville Water Power Co.... 531 Moore, Ex'r. of, V. Vance 346
Martini V. Coles B46 Moran v. Mayor, etc., of Mobile 625
Martinsville, First Nat Banli of, v. Canat- Mordecai v. Stewart 430
sey 141 More V, Howland 95
Marvine V. Hymers 153,153, 235 Morehead V. Newell 555
Marvine V. McCullum 341 Morgan V. Fillmore 672
Mary.Tlie 727,734,739,782 Morgan v. Mechanics' Banking Ass 262
Mary Ann, Tlie 792 Morgan V. Eavey 669
Maryland, etc., Ins. Co. v. Dalrymple 697 Morgan V. Tifton 400
Masonv. Abdy 286 Morissetv. King 186
Mason v. Lord 415 Morrel V. Fuller 458
Mastersv. Drayton 467 Morrisy. Floyd 407
Matherv. Staples 598 Morris, Executors of 297
Matlock v. Mallory 3S4 Morris Canal, Company v. Fisher
etc., 603
Matthews v. Coe 412 Morris Canal,etc., Company V. Lewis . ... 674
Matthews V. Griffiths 333 Morrison v. McKijmon 254
Manghan T. Walker 465, 470 Morse T. Hovey 441, 444
Maznzan v. Mead 122 Morse v. Bowland 402
McAllister JermanV. 408 Morse v. Wilson 285
McAllister, Appeal of 272 Morse v. Woods 607, 697
McClure V. Williams , 396 Morton v. Bramner 686
McCombie V. Davies 639 Moses v. Cochrane 562, 564
McCraney v. Alden 86, 90, 348, 398 Moss V. Bowland's Ex'rs 402
McGennes v. Hart . , 98, 325 Mowry V. Bishop 243, 244
McGraw v. Adams 672 Mowry v. Wood 601, 677
McHenry v. Hazard 671 Muir Newark Savings Inst
V. 171
McKay v. Draper 671 Mnmford v. Am. Life Ins. and Trust Co., 121
McEenna, Ex parte 527 366
McLamore v. Hawkins 559 Munn v. Commission Co 341
McNeil V. Fourth Nat. Bank, N. T 590 Murphy V. State 478
McNeil V. Tenth Nat. Bank 600 Murray v. Barney 417
Mead v. Brown 661 Murray v. Harding 108, 195, 3.31
Meagoe v. Simmons 329 MuBselman v. McElhenny 391
Mechanics' Bank v. Edwards . . 407, 409 Myttoon v. Cock 634
Meechv. Stover 424
Melville v. Am. Benefit Ass 362
Menstonev. Gibbins 783
N.
Merrills v. Law 356, 469
Merritt v. Burton 148 Naish, Matter of, 197
Merville v. Le Blanc 427 Nasie, Case of 454
Meyer v. City of Muscatine 244 National Bank of Metropolis v. Orcutt 460
Meyerstaiu v. Barber 675
National Ins. Co. v. Sackett 340
Middlesex Bank v. Minot 614, 670 Nanman v. Caldwell 641, 643
Miller v. Kerr 411 Navulshaw v. Brownrigg 626
Miller v. The Rebecca 736, 737 Naylor v. Baltzell 787
Miller v. Tiffany 83 Nelson v. Edwards 579
Milliken v. Dehon '.
gge Nelson v. Wellington 577

Mitchell V. Griffeth 805 Nelson,The 786,788,790, 794
Mitchell V. Oakley 343 Nevison V. Whitby 106, 230
Mitchell V. Preston 305
,
New Bedford Savings Inst. v. Fair Haven
Mitchell y.Winslow 666 Bank 668
Molton V. Camroux 631 Newbold v. Wright 524
Monk V. Hovey 404 Newell V. Doty 341
Monroe v. Douglass 86 Newell V. Pratt 524
PAGB. PASS.
New Jersey, etc., Co. v. Turner 469 Panama, The 738,739, 796
Newlands t. Chalmers' Trustees 383 Parker viBrancker 596
Newman v. Kershaw 4G5 Parker V. Cousins ...^ 400
Newman v. Kerson 90 Parker V. Gillies 691
New Orleans Gas, etc., Co. v. Dudley 459 Parker V. Linnett 672
NewsoQ V. Thornton 534 Parmelee v. Lawrence 380, 449
Newton v. Moody 673 Parr V. Eleasen 339
New York Dry Dock Bank v. Am. L. Ins. ParshaU V. Bggart 494, 516
and T. Co 306 Parsons v. Overmire /.. . . 511
New York Firemen's Ins. Co. v. Ely 236 Patapsco, The 733, 794
NewYorkFiremen'sIns. Co.v. SturgiB,^107, 156 Patchin v. Pierce 651
S3S, 237 Paterson v. Task 523
New York Life Ins. and T. Co. v. Beete. . . 318 Pathonier v. Dawson ! 683
New York Mutual Life Ins. Co. v. Bowen, 414 Patomi Campbell
v. 672
Nicholas v. Bellows 427 Patton V. The Eandolph.. 731, 738
Nicholas V. Skeel 429 Paullv.Best 663
Nicholas v. Fearson 126 Payne v. Watt^raon 355
Nichols V. Maynard 206 Paynev. Woodhull 500
Nichols V. Stewart 461 Pearson V. Bailey 400
Nicholson v. Oooch 663 Peers v. Sampson 630
Nicklssonv. Trotter 688 Peet V.Baxter 691
Nivan v. Roup 516 Pennell v. Attenborongh 685, 689
Noblev. Walker 447 Pennsylvania Ins. Co. v. Duval 778
Noland V. Clark 610 People V. Adriene 380
North V. Sergeant 165 Perkins v. Conant. .. 429
Nottebohn v. Mass 599 Perrinev. Hotchkiss 273
Nunn, Ex parte 657. Perrine V. Stryker 443
Nuova Loanese, The 791 Perry v. Beardslee 631
Perry V. Roberts 603
Peters v. Mortimer 444
o. Pettingillv. Brown 468
Pettitt V. First, etc.. Bank 509, 558, 674
Odiome V. Maxey 524 Petty V. Overall 625
Ogle Atkinson
V. 565 Philanthropic, etc., Ass. v. McKnight 425
Ohio and Miss. B. B. Co. y. Kasson 414 Phillips V. Belden 412
Oliverv. Oliver 45, 382 Phillips V. Jones , 644
Oliver Lee's Bank v. Walbridge, 161, 152, 153 Pickaway Co. Bank y. Prather 393
334 Pickens v. Yarborough 620
Olivia, The 797 Pickeringv. Burk 523, 562
Oologardt V. The Anna 788 Pigot V. Cubley 695
Oralia,The 741, 745 Pike V. Ludwell 219,310
Orange Bank v. Colby 274 Plants, etc., Co. v. Falvey 679
Oriental, The 737 Piatt V. Hibbard 636
Ottov. Durege 237, 238 Pomeroy v. Ainsworth 88
Owen V. Barrow 468 Pope V. Nickerson 782
Porter v. Mount 374, 423, 424, 471
Portland Bank V. Stone 152
P. Post V. Bank of TJtica 409, 438
Post V. Dart 405, 415
Packard v.The Louisa 775 Powell V. Henry 620

Packet, The 7.34,785, 786 Powell V. Jones 266
Page, Case of 432 Powell Waters
V. 347, 386
Paley. Leash 627 Powers V. Waters 341
Palen V, Johnson 424 Pratt V. Adams 85, 395
Pallard V. Baylor 212 Pratt V. Willey 308
Pallardv. Scholey 307 Prescott, Ex parte. .
."
657
Palmer v. Baker 139, 329 Price V. Lyons Bank' 338, 396
Palmer V. Lord 423 Price V. PhiUips 668
FASE.
Price, Ex parte 660Robinson v. Cropsey 366, 595
Pridely v. Hose 498Robinson v. Hnrley

Prother v. Fnrman 440 Robinsonv. Loomis 271
Pusey V. Pasey 649 Robinson v. Macdonald 506

Rock, etc., Bank v. WooUscropt 336
Rockwell V. Charles 224
Rogers v. Buckingham 172
Rogers T. Sample 214
Rosa V. Bntterfieia 413, 417
Qnackenbnsli T. Leonard 186 Rose T. Dickson 302, 312
Queen V. Dy 475 Ross V. Ackerman 470
Quickv. Grant 187 Ross V.Hill 642
Quiner t. Callender 384 Ross
V. Norvell 681
Eowe V. BeUaseys 203
Eowe V. Gunson 297
R Rowev. Phillips
Royal V. Rowles
459
660
Royal Arch, The 774
EahlT.Parr 751
Royal Stuart, The 791
Bamsdell v. Morgan 331, 433
Rozet V. McOlellan 621
Bandall v. Peters 603
Ruchu V. Conyngham 734
Rankin v. McCnllougli 592
Rnddel V. Ambler 447
Kansom v. Hays 410, 430
Ruddock V. Boyd 347
Eapalye v. Anderson 94, 119
Enffln V. Armstrong 303, 339
Ratcliff V. Davis 533,636,642, 669
Runyon V. Mercereaux 554
Hatcliff V. Vance 546
Rutherford V. Smith 463
Rawliueon v. Pearson 655
Rutland Bankv.Woodmff 597
Eeade v. The Commercial Ins. Go 733
ByeUv.Rolle 507,517, 554
Beading V. Weston 406
Rebecca, Tile 771
Reed v. Jewell 681 S.
Reed V. Smitli 331, 347
Beeves V. Cappen 608, 518 SaflbrdT.VaU 408
Reeves v. Smith 610 Salacia,The 774
Regan V. Serle 672 Salarte v. Melville 169
Regina V. Goodbum 686 Salina Bank V. Alvord 281
Begina v. Mandee .'
662 Salina Bank V. Henry 437
Regina V. Radnitz 662 Sanderson V. Warner 382
Renolds V. Clayton 286 Sandsv.Chubb 407
Rex T. Gilham 467 Sandusky Bank v. Scoville 360
Rex V. Robinson 476 Sanduvien V. Brunner 340
Rex V. Upton 457 Saunders v. Davis 545
Rexford v. Widgen 439 Saunders v. Lambert 427
Rice v. Benedict 611 Sawyer v. Ghan 174
Rice Mather
V. 129 Schalk V. Harmon 613
Rice V. Welling 400 Schemerhom V. Am. LiTe Ins. and T. Co.. 321
Richv. Tapping 308 Schemerhom v. Talman 323, 489
Richards V. Brown 293 Schmidt V. Blood 625
Richardson v. Brown 98, 325 Schoolev. Sail 606
Richardson v. Crandall 654 Schoopv. Clarke 268
Ringgoldv. Binggold 622 Schroeppel V. Coming.... 348, 414, 431, 432, 433
Robbing v. Dillaye 235 Scofleldv. Day 384
Roberts V. Sykes ... 650 Scott V. Lewis 3" 3
Roberts v. Thompson 631 Scott V. Lloj'd 203, 296, 361
Roberts v. Tremange 100, 291 Seawell v. Shonberger 426
Roberts v. Wyatt 517 Munson
Sellick V. 607
Robertson V. Kensington 625 Seneca Co. Bank v. Schermerhorn 327
Robertson, In re 662 Seymour V. Marvin 128
Robinson V. Bland 80 Seymour v. Strong 302, 312,
'. 349, 860
PAQB. PAQB.
Shackell v. West 684, 635 Stevens y. Lincoln 426, 428
ShankT. Payee 466 Stevens v. Wilson 529
Shanksv. Kennedy 803 Stevenson y. Newerham 663
Sharpley V. Hunt VH Stewart y. Drake 594
ShawT. Coster 671, 678 Stieiv.Hart 537
Shaw V. Spencer B31 Stocknerv. Bthnall 836
Sbepherd, Ex parte 656 Stoker v. Cogswell 649
Sheppard v. Union Bank of London 527 Stonev. Ludderdale ^. 498
Shei'man v. Partridge 672 Stone y. McConnell 401
Ship Packet, The 741 Stoney v. Am. Life Ins. Co 406
Shuck V. Wright 814 Storery. Coe 263, 471
Shnfelt T. Shnfelt 405 Story y. Eimbrongh 380
Simpson y. Fullenwider 389 Strettonv. Taylor 465,474
Sizerv.Miller 121 Stribbling v.Bauk 156, 818
Slevin v. Morrow 609 Stuart v. Mecb. and Farmers' Bank 287
SloBsen V. Duff 268 Sturgess v. Claude 673
Smalley V. Doughty 401,464 Sturtevant v. Jaques 530
*',
Smead V. Green 427 Styartv. Bowland 603
Smedberg v. Whittlesey 388, 389 Summerset v. Cookson 649
Smedbury v. Simpson 389 Sumner v. Hamlet 517
Smilax, The Smnnerv. People 8W
.'
788 217,
Smith T. Beech 109, 238 Snydam y. Booth 878
Smith V. Cooper 348 Snydam y. Westfall 118,872, 878
Smith V. HolUster 401 Swainston y. Clay 662
Smith V. Marvin 95, 128 Swartwont y. Payne 362
Smith V. Nichols 890 Sweet v. Spencer 327
Smith V.Payne 345 Swettv. Brown 638, 555
Smith V. Prager 467 Swinney v. State 489
Smith V. Eobinson 430 Surtz V. Platz 416
Smith V. Sasser 519 Sylvester v. Swan 343
Smith V. Silvers 141
Smith T. Stoddard 428
Smith T. The MuncU Nat. Bank 141
Smith, Ex parte. In re Harvey 658
Smith and Strickland, Ex parte 664 Taggart y. Packard 550
Smousev. Bail 621 Tahnadge y. Pell 883
Snow V. Fourth, Bank Tanfield y. Finch 190
etc., 634, 568
South Sea Co. v. Duncomb 606 Tartar, The 786,788
Spain V.Hamilton 100, 448
Tate y. Wellings 818, 310
Spalding V. Reeding 666

Taylor v. Cheever 680
Spear, Ex parte 667
Taylor y. Chester 598
Spencerv. Tilden 848,250, 254
Taylor v. Cobb 456
Spurrier V. MayosB 208,209, 364
Taylory. Daniels 398
Stainbank V. Shepard 789, 795
Taylor y. Freemai; 585
Stanley v. Jones 502 Thallhimer v. Brinkerhoff. 602
Stanley V. Whitney 398 Thayer y. Dwight 598

St. Jago de Cuba, The 794 Thomas V. Gettings 735
St. Johnv. O'Connel 505 Thotoas-y. Murray 181, 286
St. Losky V. Davidson 620 Thomas v. Watson 472

State v. Auditor 880
Thompsony. Andrews 508
State V. Fletcher 374 Thompson y. Bury 441
SteamsT. Marsh 584, 615
Thompson y. Nesbit 304
Steelev. Whipple 131, 328, 347
Thompsony. Patrick 662
Stein V. Indianapolis, etc., Ass 410
Thompsony. Pnmell 474
Stephens v. Muir 408
Thompson y. VanVechten 414
Stephens V. Watson 475 Thomson y. Powles 84
Sterling v. Janson S93 Thomson y. The Koyal Ins. Co 766
Stevens T.BeU ... 647 Thomdikev. Stone 178, 738
Stevens y. Hurlbert Bank. . : 596, 630

Thome y. Tilbnry 668
30 INDEX TO GASES CITED.
PAez. FASX.
Thornton Bank of Washington
v. 166 Van Amringe t. Peabody 534
rrhorp V. EnkB 98 Vanderzee T. Willis 648,655, 669

Thurston v. Cornell 95, 136 Vanderwater T. Yankee Blade 775
Tlbbeta v. Flanders 696 Van Duzer v. Howe 118, 132
TomkinsT. Bemet 49 Van Herbuck, Case of 466

Tompkins V. Hill 439 Vaupell T. Woodward 899
Tompkins v. Saltmarsh 629 Vaux T. Austin 472
Toole V. Stephen 332 Vest T.Craig 582
Topclif Waller
V. 457 VibUia, The 741
Topping V. Keysell 663 Vickery Dickson
T. 233, 347, 398
TorryT. Grant 308, 388, 396 Vilas T.Jones 476
Towsler V. Durkee 336 The Ship,
Virgin, t. Vyfhius 771, 786
Treadwell V. Davis 552,559, 600 VroomT. Ditmas 459
Tregoing v. Attenborongh 431, 668
Trotterv. Crockett 607
Trotter V. Curtis 1S8
Troughton, Ex parte 658
w.
Wade T. Wilson 451
Trontman V. Bamett 390
Wadsworth T. Champion 211
Tmllv. Trull 530
WadsworthT. Thompson 682
Truscottv. Davis 419
Waite T. Windham, etc., Co 325
Truxworth V. Moore 445
Wake.Exparte 655
Tucker v. Morris 673
Wakeman v. Grady 612
Taf ts V. Shepafd 342
Walcott t: Kirth 519
Tnllet V. Linfleld 456
WaldreuT. Chamberlain 731
Tunno v. The Mary 784
WalesV. Webb 396
Tunstall v. Boothby 498
Walker T. Staples 675, 681
Turnbull v. Ship Enterprise 718
Wallace t. Bank of Washington 347
Tnrney v. State Bank 228
Ward T. Macaulay '. . . 561
Tnmongh v. Cooper 447
Ware t. Bennett 425
Turquandv. Mosedon 690
Warev.Otis 695
Turton v. Benson 206
Ware v. Thompson 448
Tnthill v. Davis 847,394
Warren T. Crabtree 397
Tuttle V. Clark 211
Washburn T. Pond 696
Twogood, Ex parte 655, 659
Washington Bank T. Arthur 313
Tyler V. Gates 243
Waterman T. Brown 660
Watriss T. Pierce 427
Wave, The 790
u.
Way T. Foster 653
Udall T.Walton 662 Webb T. Cowdell 669
Union Bank T. Bell 448
Webster v. Seekamp 793
Union Bank of Rochester v. Gregory 154
WeinserT. Shelton 349
United States v. Athens Armory 380
WellST. Chapman 406, 413
United States T. Victor 672

Wells T.Foster 300
United States Bank V. Lloyd Wells T. Girling 209
104
United States Bank v. Owens 323, 877
Wendlebone t. Parks 392
United States Bank v. Waggoner 222 Wensley, Ex parte 661
Urqnhart v. Mdver 524, 539

West T. Skip 661
Ushonse, Ex parte 660
Western Reserve Bank t. Potter 221
UtIcaBank v. Wager 156
Westzinthns, In re 566
Utica Ins. Co. v. Bloodgood 156
Wheaton T. Hibbard 422,423, 424
Utlca Ins. Co. T. Cadwell 155 Wheaton T.May 183
Wheeler v. Newbould 879
Wbelpdale, Case of 396
V. Whipple T. Powers 254

Whitaker t. Sumner 555
143 White
Valentine T.Conner T.Bartlett 662
680 White T. Phelps

Valettev. Mason 680
312 Whitebread, Bx par^

Valley Bank v. Strlbbling 656
PAOS. PASS.
Wbitehall, First Nut. Bank of, y. Lamb, 91, 92 Wilsonv.Dean 214
Whitlock V. Hoard 699 Wilson v. Duncan 671
Whitney V. Peaz 575 Wilson T. Harvey 274
Whitten v. Hayden 343 Wilson T. Little 601, 608, 668, 660, 585
Whitwell V. Brigliam 597, 599 Wing T. Dunn 388
Whitworth T. Adams 127 Winser V. Shelton 3B8
Whitworth v. Yancey a 344 Wood T. Rowcliffe .., '.
649
Wiley V. Crawford 677 Woodruff T. Hurson 240
Wiley T.Yale 426 Woodworth v. Morris 678
WilkesT. Coffin 471 Wordworth v. Huntown 449
Wilkie T. Brig St Fetre 758 Wrightv. Bnndy 408
Willdnson T. Wilson 791 WrightT. Wheeler 324
William and Emeline, The 739, 777, 788 Wylde T. Radford 628
Williams v. Archer 644 Wynne v. Crosthwaite 175
Williams v. Pitzhugh 446
^Williams V. Fowler 359
Williams v. Herron 327
Williams T, House 132
Williams v. Stoner 344 Young T. Fletcher 661
Williams v. Tilt 407 Young T. Miller 356
WilUamsT. Wilson 392, 429 Ysabel Boza, La '
794
Williams, Ex parte 660 Yuba, The 735
Williamson v. McClnro. 621
Willonghby v. Comstock 222, 601
Wills T. Murray z.
670
Wilmot ». Manson 471
Zephyr, The 781
The Law of Usury, Pawns
or Pledges, and
Maritime Loans.
I*ART I.
OF THE LAW OF USURY.

CHAPTEE I.
DEFINITIONS OF USUET AND INTEREST THE WOEDS DIFFBE IN THEIE

MEANING OPINIONS EESPECTING THE MOEALITT OF TAKING INTB-
EE8T —
ANCIENTLY, THE PEAOTICE CONDEMNED AT PEESENT, IT
IS APPEOTED.
UsuEY has been variously defined. The definition given to it

by lexicographers is, "money paid for the use of money," or
" interest ;". and such was the original signification of the word.
The etymology of the words usury and interest is the same but, ;
in modern law, the two words are quite difierent in their meaning.
Interest premium allowed bylaw for the use of money;
is the
while Usury is more for the use of money than the
the taking of
law allows, or the extortion of a sum beyond what is legal. Lord
Bacon, in his able work on " Civil History," pronounces usury to
be " the bastard use of money." Judge Blackstone says it is " an
unlawful contract, upon the loan of money, to receive the same=
again with exorbitant increase." (4 Black. Com., 156.) . Matthew
Bacon says, " Usury, in a strict sense, is a contract, upon the loan
of money, to give the lender a certain profit for the use of it, upon
all events, whether the borrower made any advantage of it, or the
lender suffered any prejudice for the want of it, or whether it be

paid on the day appointed or not" (6 Bac. Abr., Ut. ''Of Usury") ;
and Judge Bouvier says, "Usury is the illegal profit which is

required by the lender of a sum of money, from the borrower, for
its use." (1 Bouv. Inst., 299.) The definitions by Blackstone
and Bouvier give a fair idea of the meaning of the word according
to its present use, though no more satisfactory, perhaps, than the
one first above given. The true spirit of usury lies in taking an
unjust advantage of the necessities of the borrower. The receiving
of simple interest regarded both legal and moral at the present
is
day ; -while the taking of usury is considered by all Christian

nations an offense against the laws of morality and right. It is
true that, in former times, many good and learned men pei:plexed
themselves and other people by raising doubts as to the propriety
of requiring any eompeqsation for the use of money loaned.
";
3(5 LAW OF VSURT.
These men made no distinction between this practice and usury;

holding any increase of money to be indefensibly usurious. This
view of the subject was taken at an early day by ecclesiastical
writers, stigmatized the taking of interest as contrary to the
who
divine law, and by the canons of the church it was forbidden and
punished as sinful and against Scripture. Especially, in the dark
ages, when learning was confined to the monastery, and commerce
was almost unknown, the severest denunciations were thundered
by the church against the taking of simple interest, as a " horrible
and damnable sin ;" and it was ranked with heresy, schism, incest
'
and adultery, and punished by expulsion from the fold of the flock.
This position was based upon the construction which they gave to
the law of Moses among the Jews " If thy brother be waxen :
poor, and fallen in decay with thee, then thou shalt relieve him
yea, though heie a, stranger, or a sojourner, that he may live with
thee. Take thou no usury of him, or- increase, but fear thy God,
that thy brother with thee. Thou shalt not give him
may live
"
thy money upon usury, nor lend him thy victuals for increase
{Lev. XXV, 35-37). "Thou shalt not lend upon usury to thy
brother; usury of money, usury of victuals, usury of anything
'
that is lent upon usury. Unto a stranger thou mayest lend upon
usury, but unto thy brother thou shalt not lend upon usury
{Deut. xxiii, 19, 20 ). But it has been observed, that the Mosaical
precept was clearly a political, and not a moral mandate, since it
only prohibited the Jews from taking usury from their brethren, the
Jews, while, in express words, it permitted them to take it of a
stranger ;
proving that the taking of moderate usury, or a reward
for the use of money (for so the word signifies), is not, ipso facto,
an oflcnse, since was allowed where any but an Israelite was

it
concerned. Besides, many pious and learned men and commenta-

tors have expressed the opinion that usury, in the strict sense of
the word, was only unlawful, even among the Jews, when contami-
nated by oppression, cruelty or extortion. The Israelites were but
engaged in commerce, and their law was not only calculated,
little
but intended, to keep them from mingling by any means with

other nations. Their land also was divided by lot, and they were
not allowed to alienate their inheritances. They were not, there-
fore, much in the way of lending or taking money upon interest,
to employ in trade or expend in estates, in which cases, and in
those of the like nature, it does not appear inconsistent with either
OPINIONS C0NCJSBNIN9 INTMBEST. 37
equity or law for the lender to receive a proportion of the profits

from the borrower. And as the Jews were expressly permitted to
take interest of the gentiles, it is evident that increase on lent
money is not in itself unjust, or contrary to the divine law, when
not attended by oppressive circumstances. Besides, the taking of
interest would seem to be sanctioned, or, rather, not forbidden, in
the ISTew Testament remembered that our Lord, in
; for it will be
the parable of the nobleman, declares to the servant that had
received one talent and had hid it in the earth, so that it gained
nothing, " Thou oughtest, therefore, to have put my money to the
exchangers, and then at my coming I should have received mine
own with usury " {Mat. xxv, 27 ). It is reverently suggested that
this injunction would not have been given, even parabolically, if

it were immoral, or contrary to the law of Moses.
In the middle ages, during the dark period of monkish supersti-

tion and civil tyranny, when commerce was at its lowest ebb on
the continent of Europe, and in England itself, and what little
there was of it was monopolized by the Jews and the Lombards,
so enormous was the interest demanded for the use of money,
that the business of the broker or money-lender was considered
detestable, and this feeling gave rise to the maxim, ^'JJsuria
dieiPur quasi ignus v/rens :" " It is called usury, as though it
,
were a consuming fire." The brokers, or usurers, during this

period, were so cruel and oppressive that all interest on money
was laid under a total interdict, and the traffic of the Lombards
and Jews was everywhere considered odious and cruel. But when
'men's minds began to be more enlarged, when true religion and
real liberty revived, commerce grew again into credit, and again
introduced with itself its inseparable companion, the doctrine of
loans upon interest.
Anciently, it was held in England to be absolutely unlawful for
a Christian to take any kind of usury or interest for the use of
money, and whoever was found guilty of so doing was liable to
be punished by the censures of the church in his lifetime, and if
after death it was found that the deceased had been a usurer while
living, all his chattels were forfeited to the king and his lands
escheated to the lord of the fee (5 Bac. Air., tit. " Of Usury at
Com. Law ") ; and even so late as the latter part of the sixteenth cen-
tury, the great English jurist. Lord Coke, declared all usury unlaw-
ful (2 Inst., 89 ; 3 *5., 151 ). But fifty years later. Sir Matthew
38 I^-AW OJP USURY.
Hale, another eminent English jurist, says that at common law tlie
Jewish usury, which was forty per cent, was prohibited, and no
other {Hard., 420); and very soon after the time of Sir Matthew
Hale, it was generally agreed that the taking of a reasonable inte-
rest for the use of money was in itself lawful, and that a covenant
or promise to pay it, in consideration of the forbearance of a debt,
might be on the principle that one having an estate in
inferred,
money should be allowed to make a profit by it, as well as another
having an estate in land, and that there was no reason why the
lender of money should not make an advantage of it as well as
the borrower. Indeed, in the thirteenth year of the reign of
Queen Elizabeth, a statute was passed, which tolerated the receiv-
ing of interest, but restrained it to ten pounds per cent and near ;
the close of the last century. Dr. Paley, in his excellent and
standard treatise upon the Principles of Moral and Political Philo-
sophy, emphatically declares that no reason exists in the law of
nature why a man should not be^paid for the lending of his money
as well asany other property into which the money might be con-
verted (1 Paley' s Phil., Boston soh. ed., 108 )f The ancient
Athenians held usury in great abhorrence, but they tolerated the
taking of interest, which they fixed at rates deemed sufficient to
money loaned, having respect
afford a fair profit for the use of the
to the object to which the money was to be applied.f Among
the Eomans, during the Empire, the most simple interest was
condemned by the clergy of the east and west. Cyprian, Lactan-
tius, Ohrysostom, Gregory of Nyssa, Ambrose, Jerome, Augus-
tine, and a host of councils and casuists, were unanimous in their
declarations against the practice ; but the condemnation of the

statesmen, like Cato, Seneca and Plutarch, was more of the abuse
of usury than of the practice itself. X Usury was the inveterate
*Hume, in his thirty-third oliapter of the History of England, says :

" In 1546 a law was made for
fixing the interestiof money at ten per cent, the first legal interest known in England. For-
merly all loans of that nature were regarded as usurious. The preamble of this very law treats
the interest of money as illegal and criminal."
+ Among the laws of by Plutarch, no restrictions
Solon, the great lawgiver of Athens, recorded
upon the trade in money seem to have been enacted and Boeckh, the German philologist, in his
;
graphic treatise upon ancient Athens, says " It is a glorious monument of the enlightened and
:
commercial character of Greece, that she had no laws on the subject of usury that her trade in
;
money, like the trade in everything else, was left wholly without legal restriction."
X Calvin, Melancthon, Beza and other eminent reforiners, all give their views upon the prac-
tice of usury, that is, an oppressive or extortionate interest, which they severely condemn but ;
nevertheless they express the opinion that the taking of a fair compensation for the use of
money is both reasonable and lawful. (Ylde Calvin's Epist. "J)e Uswre ").
OPINIONS CONCERNING INTMBEST, 39
grievance of the Eepublic, and was therefore discouraged by the

Twelve Tables, and finally abolished by the clamors of the people.
But it was soon revived by their wants and their idleness, tolerated
by the discretion of the praetors, and ultimately, in the Empire, it was
determined by the Code of Justinian, in which the necessary rules
and restrictions in regard to it were inserted {Vide 4 Gib.
Rome, ly Mihnam,, 368 ).
In the American States, it has never been against the policy of
the country, or, at least, it has not been for many generations, for
the lender to take simple interest for the use of the money loaned,
and the rate has been universally regulated by law. It must be'
admitted, however, that at the present day there is a class of
pseudo reformers, diminutive in numbers as yet, who advocate the
doctrine that interest on money lent is extortion, and consequently
illegitimate and immoral. Following the example of the com-
munists of Europe, these men declare that capital is of itself
unproductive, and that labor alone has rights. The same princi-
ple leads to the conclusion, to which they hold, that a person who
lends to another a chattel for his use, has no right to call upon the
borrower for pay for the loan ; all that he can justly require is
that the article be returned in good condition. They insist that

whether capital be represented by property or money, it is equally
unjust to take interest for the use of it. These doctrines, to be
sure, are put forth in the main by a few demagogues and agita-
tors who subsist by fermenting the passions and prejudices of the
lower orders of the people and yet they not unfrequently create
;
distrust and inconvenience, especially in the manufacturing and

mining districts of the country. But there is no probability that
these ideas will ever become a part of the settled policy of any
of the States, for the reason that the mercantile and agricultural
classes must always be hostile to The
such a state of things.
necessity of individuals will alwaysmake borrowing unavoidable,
and without some profit allowed by law, few persons will be
found who will lend. The public conscience "will, most likely,
continue to regard the taking a recompense for the use of money
loaned as neither oppressive nor immoral, and laws will continue
to exist regulating the rate to be paid, in the absence of any
express bargain between the parties. Though money was origi-
nally used only for the purposes of exchange, yet the laws of every
civilized country have for ages permitted it to be turned to the
;
:
40 LAW Oil' asuBy.
purposes of profit. And that the allowance of a moderate

in a
interest tends greatly to the benefit of the public, especially
trading country, is abundantly obvious from that generally
acknowledged .principle, that commerce cannot subsist without

mutual and extensive credit. Unless money can be borrowed,
trade cannot be carried on, and, as before hinted, if no premium
be allowed for the hire of money, few persons can be found who
will lend it, and the life of commerce will be entirely at an end.
But while the policy of a reasonable and fair interest for the use
of money is almost universally approved, the practice of usury,
or the taking of more than the law allows for such use, is qiiite as
uniforinly condemned. The laws which regulate the rate of
interest,and prescribe the consequences of usury, are quitevarious,
and a correct understanding of all their provisions is important to
the legal profession, and to the interests of commerce in general.
CHAPTER II.
HISTOBT OF trSHET IN ErEOPE AND GREAT BRITAIN DENUNCIATIONS

BY THE EARLY WEITEKS OF USUREES AND THBIE_PEACTIOB.
The occupation of the usurer has been bitterly denounced in
all ages of the civilized world, and in most Christian countries
'therehave been laws to suppress it. In respect to the usurer, St.
Basil, one of the most learned theologians and illustrious orators
of the early Christian church, uses this very extravagant language
" The griping usurer sees, unmoved, his necessitous borrower at
his feet, condescending to every humiliation, professing everything
that is vilifying ; he feels no compassion for his fellow-creatures
though reduced he yields not
to this abject state of supplication,
to his humble prayer ; he is he melts
inexorable to his entreaties ;
not at his tears "he swears and protests that he

; has no money,
and that he is under necessity of borrowing himself; he acquires
credit to his lies by superadding an oath, and aggravates his
inhuman and iniquitous trafiic with the grossest perjury. But
when the wretched supplicant enters upon the terms of the loan,
his countenance is changed ; he smiles with complacency ; he
reminds him of his intimacy with his father, and treats him with
;
:
MISTORT OF USUBT. 41
the most flattering cordiality, '

Let me see,' says he, '
if I have
not some ought to have some belonging
little cash in store, for I
to a friend who lent it to me on very hard terms, to whom I pay
most exorbitant interest for it but I shall not demand anything ;
like that from you.' By fair words and promises, he seduces and
completely entangles him in his snares ; he then gets his hand to
paper and completes his wretchedness. How so ? By dismissing
him bereft of liberty." And he closes by giving the advice
" Sell thy cattle, thy plate, thy household stuff, thine apparel
sell anything rather than thy liberty ; never fall under the slavery
of that monster, usury." This language, to excite disgust of the
usurer^ was used in the fourth century but equally strong lan- ;
guage has been frequently used since. In the seventeenth cen-

tury, John Blaxton, an English writer of some eminence, gave a
description of the usurer, saying, " The usurer is known, by his
very looks often, by his speeches commonly, by his actions ever
he hath a lean cheek, a meager body, as if he were fed by the
devil's allowance his eyes are almost sunk to the backside of his
;
head with admiration of money, his ears are set to tell the clock,
his whole carcass is a mere anatomy " ( Vide Blaxtoii's ^'•English
Usurer "). And the learned Dr. Fenton says, " The testimony of
all authority, civil and humane, ecclesiastical and profane, natural
and moral of all ages, old, new, middling of all churches,

; ;
primitive, superstitious, reformed ; of all common creeds, Jewish,

Christian, heathenish ; of all lands, foreign and domestic, are
against usury ;
* * * usury was never even defended for
fifteen hundred years after Christ." Volumes have been pub-
lished at different times, purporting to give an authentic history
of the laws to prevent usury from the earliest period, but a very
brief outline of the subject must suflice for the purposes of this
work.
In the year 1819, over fifty years ago, there was an importatit
case in the Court of Errors of the State of New Tork, involving
the question of usury, and the counsel for one of the parties made
a violent assault upon the usury laws then in force in the State
so much so, that the eminent Kent, then chancellor, and a mem-
ber of the court, felt justified in spending a little time in their
defense, and in the course of his remarks he gave some very
interesting items of history in respect to usury laws in general.
He said :
" If we look back upon history, we shall find that there
6
42 LAW OF USURY.
is scarcely any people, ancient or modem, that have not had usury
laws. I believe there is not a nation in Europe at this day with-
out them. In ancient Eome, according to Tacitus {Ann., lil). 6,

ch. 16), usury was discouraged in the early period of the Repub-
lic by the Twelve Tables, which reduced interest to one per cent.
It was afterward lowered to one-half per cent, and finally abol-

ished by the clamors of the people. It was revived in the ages
of commerce and luxury, but placed under necessary restrictions.
Four or six per cent was the ordinary interest ; eight per cent was
allowed for the convenience of commerce, and twelve per cent
might be taken for maritime hazards by the laws of Justinian, but
the practice of more exorbitailt interest was severely restrained.
" The Romans, through the greater part of their history, had the
deepest abhorrence of usury. They did not derive their objection
to usury from the prohibitions in the Mosaic law, nor did they
hold it sinful, as the learned Fathers of the early and middle ages
of the church have done, for they knew nothing of that law. The
Roman lawgivers and jurists acted from views of public policy.
They found, by their own experience, that unlimited usury led to ,
unlimited oppression, and the extortion of the creditor and the

resistance of the debtor were constantly agitating and disturbing
the public peace.
" But it is not only the civilized and commercial nations of mod-
ern Europe, and the sage lawgivers of ancient Rome, that have
regulated the interest of money. It will be deemed a little sin-
gular that the same voice against usury should have been raised in
the laws of China, in theHindoo Institutes of Menu, in the Koran
of Mahomet, and, perhaps we may say, in the laws of all nations
that we know of, whether Greek or barbarian.
" There is one exception, however, that I ought to notice, and
which is supposed to be found in the laws of Solon, given to the
Athenian republic. This celebrated lawgiver is said to have allowed
parties to regulate the rate of interest by their own contracts.
When Solon was called to make laws for Athens, the State was in
complete anarchy and when he was asked if he had provided the
;
best laws for the Athenians, he replied that he had provided the
best that their prejudices would admit of. One of his first steps
was to cancel all existing debts ; though, according to Plutarch
[Life of Solon), it is not certain that he proceeded to this violent
measure, for many said that he did not cancel debts, but only
BISTORT OF USURY. 43
moderated the interest. And the result of his laws allowing

interest to regulate itself, I shall give in the words of De Pauws
{Recherches Philosophique sur les Graces, 5 JLeot., § 2). He says
that usage fixed the rate of interest at twelve per cent, in certain
eases, and at eighteen per cent in others, and that the Athenians
regarded all those who did not conform to this usage as usurers,
that is, as the most vile and the most ignominious of mankind.
The public voice which cried against them, and the profound con-
tempt which they were condemned, formed a punishment so
to
great that the lawgiver did not deem it necessary to add any other
punishment. The usage, in this case, formed the law. Now,
according to this view of the fact, interest was limited at Athens
as effectually and forcibly by discretionary law as it would have
been by any penal statute ; and the Athenian commonwealth is
not to be cited as a real exception to the general practice of mankind.

" The principal error which has prevailed on this subject is the
condemnation of any kind of interest, however small. host of A

great names, from Aristotle among the Greeks to the modern
civilians, such as Domat and Pothier, might be cited, who rank all
interest of money under the name of usury, and condemn it. But
the sense of mutual benefit has, on this point, resisted, with great
firmness, the decrees of the churchand the speculations of philoso-
phers, and a regulated and reasonable interest has had the sanction
not only of our own municipal laws, but of the most cultivated'
and enlightened human reason. Grotius (K5. 2, o. 12, §§ 20, 22),
after discussing the question whether usury be permitted by the
natural and divine law, concludes that a reasonable interest may
be permitted ; Holland as an instance in which eight
and he cites
per cent is the ordinary, and twelve per cent the mercantile inte-
rest. But he insists that interest cannot be rightfully permitted
beyond a reasonable limit Non mordaces sed mordice, according
:
to Heineccius, in his commentary on this passage, and who admits

that it belongs to the discretion of the lawgiver to regulate the
quantum of interest. He says, further, that in Germany, by
imperial ordinances, in 1600 and 1654, interest at the rate of five
per cent was allowed, though the canons of the church everywhere
condemned it, and higher interest is now admitted " {Dunham v.
Gould, 16 Johns. E., 367, 376-378.).
In England, usury was an object of hatred and legal animadver-
sion at least as early as the time of Alfred, king of the West
44 i-^"^ 0^ TTSCRY.
Saxons, in tlie ninth century ; and Glanville, Fleta and Bracton

bear the most decided testimony to the abhorrence in which it
was held, and to the severity with which it was punished. No
terms of opprobrium were spared by the early writers on the
guilty wretches who dared not only to disobey what they under-
stood to be the express commands of holy writ, but even to
subvert the laws of nature, and to cause fruitfulness in that which
had been intended to be barren and unproductive. But the
detestation in which this "horrible vice" was contemplated,
begun in the time of Hqnry VIII, in the first half of the sixteenth
century, seems to have been somewhat diminished, and in the thirty-
seventh year of that king's reign an act was passed by which the
taking of interest for the use of money was expressly sanctioned
and allpwed. This was the first act inEngland recognizing the
legality of interest on loans, but it was not without some restraint.
By the act, ten per cent was prescribed as the sum to be received
"for the forbearance or giving day of payment of one whole year,
and so after that rate ;" and it was enacted that any person receiv-
ing more than the prescribed ten per cent should forfeit, for every
offense, the total value of the money or thing forborn, and suffer
imprisonment, and that one moiety of the forfeiture should go to
the king and the other to the prosecutor.*
But it appears that this indulgent statute of Henry YIII did
not have the desired effect of suppressing corrupt and exorbitant
rates, andwas declared that " divers persons, blinded with inor-
it
dinate love of themselves, had mistaken the same as a mainte-

nance and allowance of usury," and the act was repealed in the
following reign by an act which, after premising that " usury is
by the word of God utterly prohibited as a vice most odious and
detestable, which thing by no godly teachings and productions
can sink into the hearts of divers greedy, uncharitable and covet-
ous persons, nor by any terrible threatening of God's wrath and
vengeance that justly hangeth over this realm for the great and
open usury therein daily used and practiced, they will forsake such
* Mr. Jefferson, in a letter to Mr. Hammond, which -will be found in the first volume of th^^
American State Papers, first edition, at page 307, Bays that "in England all iiiterest was against
law until the statute of 37 Henry VIH, ch. 9 ;" and he furnishes the strongest reasons for confi-
dence in hie correctness, hy the statement of a fact, that interest at that date was considered
unlawful in all Eoman Catholic countries until the time referred to. When the statute of 37
Henry VIII was passed, that was the established religion in England. This was early regarded
by the courts as a starting point of some importance, as it was thought to have a considerable
beariL'g in construing the stAtutes on the subject.
BISTORT OF USURY. 45
filthy gain and lucre unless some temporal punishment be pro-

vided," proceeds to make all interest for money illegal, and enacts
that no person shall lend any sum of money " for any manner of
usury, increase, lucre, gain or interest, to be had, received or
hoped for, over and above the sum so lent, upon pain of forfeiture
of the value of the sum lent, and also of the usury " (5 cmd 6
Edward F/, cA. 20).
Itwas found that the statute of Edward YI did not accomplish
the desired effect, and in the reign of Elizabeth another act was
passed, which, although it acknowledged that " all usury, being

forbidden by the law of God, is sin and detestable," declared that
the former act had not done so rrvuch good as was hoped it would,
but rather the vice of usury had nrnch more exceedingly abounded ;
and therefore it repealed the statute of Edward and revived the
act of Henry VIII, and established the legal interest once more at
ten per cent.
But, as the disposable capital of the nation increased, ten per-
cent interest was considered "too high, and in the following reign
of James I, in 1624, the rate was reduced to eight per cent, and
for the satisfaction of the bishops,whose scruples interfered, the
statute was made to end with a proviso, that no words in the law
contained should be construed or expounded to allow the practice
of usury, in point of religion or conscience. In reference to this
act, Sergeant Kolle said :
" Usury hath been holden infamous by
all statutes, as horrible and damnable ; and when the last statute
of eight per cent was made, the bishops would not consent to it,
because there was no clause in it, asJudge Dodridge said, to dis-

grace usury as in former statutes, and for this, as the judges were
sitting upon it, a clause was added for this purpose for their satis-
faction, as may be seen at the end of the statute " ( Vide OTmer
V. Oliver, ^Roll. ^.,469).
In the twelfth year of the reign of Charles II, another act was
passed, which recited that " the abatement of interest from ten
to eight per cent had, from notable experience, been found bene-
trade and agriculture, with many more advantages to the
ficial to
nation,and reducing it to a nearer proportion with foreign States

with which we traffic," and then reduced the legal rate of interest
to six per cent. This act remained unchanged for
fifty years, and
until 1713, when, in the twelfth year, of the reign of Queen Anne,
an act was passed entitled " An act to reduce the rate of interest,
46 i^TT OF VSURY.
without any prejudice to parliamentary securities," which fixed

the rate of interest at five per cent. This act was generally
known as the " Statute of Usury," and enacted, in substance, that
no person should take, directly or indirectly, for loan of any
money, wares, merchandise or other commodities whatsoever,
above the value of £5 for the forbearance of £100 for a year, and
so after that rate for a greater or lesser sum, or for a longer pr
shorter time and that all laws, contracts and assurances whatso-
;
ever, made for the payment of any principal, or money to be lent

or covenanted to be performed upon or for any usury whereupon
or whereby there should be reserved or taken above the rate of
£5 in £100 should be utterly void and that any person who
;
should take, accept and receive, by way or reason of any cor-

rupt bargain, loan, exchange, chevisance, shift or interest of any
wares, merchandise or other thing or things whatsoever, or by any
deceitful way or means, or by any covin, engine or deceitful con-
veyance, for the forbearing or giving day of payment for one
whole year, of and for their money or other thing, above the sum
of £5 for the forbearing of £100 for a year, and so after that rate
for a greater or lesser sum, or for a longer or shorter time, should
forfeit and lose for every such offense the total value of the
moneys, wares, merchandises and other things so lent, bargained,

exchanged or shifted. The statute then provided that scriveners,
brokers, solicitors and drivers of bargains for contracts should
take only five shillings brokerage for procuring the loan or forbear-
ing of £100 for a year, and so ratably ; and for a violation of the
provision, the person ofiending was adjudged to forfeit for every
offense £20 with costs of suit, and
suffer imprisonment for half a
year the one moiety of the forfeiture to be to the queen's most
;
excellent majesty, her heirs and successors, and the other moiety to
whoever would sue for the same in the county where the offense
was committed, and not elsewhere. It may be jvell to note tlie
terms of this statute, from the fact that the most of the acts
against usury since the passage of the same, both in England and
in this country, have been framed from 'he statute of Queen
Anne, and hence the decisions of the courts, under this act, are
applicable in most cases of usury at the present day. In fact, the
statute of Anne, like those of Elizabeth, James and Charles, is
founded upon the statute of Henry VIII, and, indeed, varies very
little in any other substantial respect than the rate of interest
;
BISTORY OF USVRT. 47
prescribed ; so that the cases which were decided imder the statute
of Henry may be taken as authorities applicable to all the subse-

quent and consequently as declaratory of the law of
statutes,
usury at the present time, under the statute of Queen Anne.
When contracts were made in a foreign country, the English courts
directed the payment of interest according tp the rate allowed in
such country; and Irish, American, Turkish and Indian interest
was sometimes allowed to the amount of even twelve per cent,
because, as was alleged, the refusal to enforce such contracts
would put a stop to all foreign trade. But by an act passed in the
thirteenth year of the reign of George III, no subject of his
majesty in the East Indies was allowed to take Wiore than twelve
per cent for the loan of any money or merchandise for a year
and every contract for more, it was declared, should be void. And
it was further enacted, that any person receiving more should for-
feit treble the value of the money so lent, with costs, one moiety to
the East India Company, and the other to him that would sue in
the courts of India. And if no such prosecution was had within
three years, the party aggrieved might recover what he 'had
paid above twdve per cent and the compounding any such risk
;
was made punishable with fine and imprisonment.

By an act passed in the fourteenth year of the same reign, it
was enacted that all mortgages and other securities on lands, tene-
ments, hereditaments, slaves, cattle or other things in Ireland, and
• also in his majesty's colonies or plantations in the West Indies, or
any estate or interest therein, which should be made in Great
Britain to any of his majesty's subjects, should be as valid as if
they had been made in the country where the property lay, provi-
ded the interest to be received did not exceed six per cent ; and also
provided the lender had not loaned more than he knew the pro-
perty secured to be worth. And
any person borrowing more than
the property secured was worth was made to forfeit treble the
value of the sum borrowed, half to go to the informer, and half
to the treasurer of Greenwich Hospital.
By an act passed in the third year of the reign of George I, the
governor and company of the Bank of England were enabled to
borrow money at whatever rate of interest, or upon such terms as
they might think fit; and the same liberty was given to the South
Sea Company, by another act passed the same year. Thus the
law stood, with no substantial variation, until the reign of William
48 I'^^ OP USURT.
IV, when an act was passed exempting from the usury laws all
billfe and .promissory notes made payable at or within
three months
after the date thereof, or not having more than three months to
run and, by an act passed several
;
years' later, the exemption was
extended to billsand notes payable at or within twelve months, or
not having more than twelve months to run.
By an act passed in the second and third years of the reign of Queen
Yictoria, it was enacted that no bill of exchange or promissory note,
made payable at or within twelve months after the date thereof, or
not having more than twelve months to run, nor any contract for
the loan or forbearance of money above the sum of £10 sterling,
should, by reason of any interest taken thereon, or secured thereby,
or any agreement to pay, or receive, or allow interest in discount-
ing, negotiating or transferring any such bill of exchange or pro-
missory note, be void ; nor should the liability of any surety to
any such bill of exchange or promissory note, nor the liability of
any person borrowing any sum of money as aforesaid, be affected
by reason of any statute or law in force for the prevention of
usury and it was declared that no person should be liable under
;
any usury law for any penalty or forfeiture for the forbearance of
any money, or taking more than legal interest, in Great Britain or
Ireland respectively provided that nothing contained in said act
;
should extend to the loan or forbearance of any money upon secu-

rity of any lands, tenements or hereditaments, or any estate or
interest therein. And it was further declared, that nothing in the
act contained should be construed to enable any person to claim,
in any court of law or equity, more than £5 per cent interest on
any amount, or on any contract or engagement, notwithstanding
they might be relieved from the penalties against usury, unless it
should appear to the court that any different rate of interest had
been agreed to between the parties and the act left all la^vs rela-
;
ting to pawnbrokers unrepealed and unaffected by the act.

By the provisions of the act of Queen Anne', all bills of exchange
or promissory notes on a usurious consideration were held to be
absolutely void, even in the hands of honafide purchasers but the
;
British Parliament, acknowledging the hardship of this rule, in the

fifty-eighth year of the reign of George III, in 1818, passed an act
declaring that "no biU of exchange or promissory note shall, though
it may have been given for a usurious consideration, or upo^ a
usurious contract, be void in the hands of an indiorgee for vcHwahle

HISTORY OF USUBT. 49
consideration, unless such indorsee had, at the time of discounting

or paying such consideration for the same, actual notice that such
bill or note had been originally tainted with usury."
It will be observed that the laws of Great Britain relating to
usury gradually became less and less stringent ; and, some dozen
years ago, public opinion had reached a crisis which called for free
trade in interest, and, accordingly, Parliament passed an act repeal-
ing aU laws then in force upon usury, and such is the state of the
law in that kingdom at the present day (17 and 18 Vict., ch. 90).
It seems that, in every period of the history of the laws of usury
in Great Britain, the usurer has alone been regarded as the guilty
party ; although, in one case, Chief Justice Treby, before whom it
was tried, held that the borrower of money at usurious interest

•was in pari delicto with the lender, and that there was no reason
why he should be permitted to recover back the money paid,
because he had parted with and volenti non fit injuria
it freely,
{TomkiMS V. Bernet, 1 Salk. E., 22 ). But the doctrine was soon
exploded and, according to Lord Mansfield, Lord Hardwicke and
;
Lord Talbot both declared their disapprobation of it. And, with

regard to parties becoming fwrtic&ps crimmde, the distinction was
laid down between the prohibitions of statutes made to protect
weak or necessitous men from being overreached or oppressed; and
the prohibitions of statutes enacted upon general reasons of policy
and public expediency. In the latter case, all parties are equally
criminal ; in the former, the oppressor is alone within the pale of
the law Oowp. B., 200 ). This doctrine has been
{Ola/rke v. Shee,
universally recognized as correct, both in England and in this
country and in no case is the borrower held to be a criminal for
;
paying, or refusing to pay, usurious interest.
CHAPTER III.
HISTOET OF USDET IN THE COLONIES AND IN THE AMERICAN STATES.
Theee is not as much of interest in the history of usury in the

American States as in that of Great Britain. Indeed, the history
of the subject in this country from the first settlement of the colo-
nies until the Eevolution is little else but a repetition of the sub-
7
50 ^-^W OF VSUBT.
ject during the same period in the mother country. The colonies,
in peace, were governed by the laws of the home government,
and among the rest they adopted the rules of that kingdom in
respect to usury, and abided by the same until their respective
law-making bodies enacted a code for themselves, and even then
the changes were- usually slight and of but trifling importance.
Perhaps the first act passed by any of the colonies relating to
interest and usury was that of the colony of Massachusetts, passed
in 1641, by which it was ordered and decreed that no man should
be adjudged for the mere forbearance of any debt above £8
in £100 for one year, and not above that rate -proportionably for
all sums whatsoever, bills of exchange excepted; but it was
expressly declared that this should not be a color or countenance to

allow ahy usury amongst them contrary to the law of God. This
continued to be the law of the colony for one hundred and fifty
years, when in 1Y93 an act was passed reducing the rate of inte-
rest to six per cent, and making all contracts in which more than
six per cent interest was reserved utterly void, and inflicting a
penalty for receiving illegal interest to the fall, value of the
money, goods or other things received, one moiety to the govern-
ment and the other to the person prosecuting for the same. This
act, with slight variations, continued to be the law in Massachu-
setts until 1825, when the law was modified so that the contract
reserving illegal interest was not thereby rendered void, but in
such cases the defendant could recover his full costs, and the plain-
forfeited threefold the amount of the whole interest reserved
tifi"
;
and if the illegal interest had been paid, the party paying the
same was permitted to recover back threefold the amount of the
whole interest paid,. provided an action was prosecuted therefor
within two years from the time such interest was paid. This last
act remained in force, substantially, untU 1867, when all usury
laws were repealed.
In the State of Yermont, the first statute upon the subject of
usury seems to have been passed in October, 1Y97, which fixed
the rate of interest at six per cent, and when more was reserved
the excess and twenty-five per cent addition was forfeited, one
moiety to the State and the other to the prosecutor. In 1822
another statute was passed, j^hich retained the rate of interest at
six per cent, and provided that, in case more was paid, the excess
might bp recovered back by the person paying the same, with the
HISTOBT Of USURT. 51
interest thereon from the tinae of payment, and such has been the
law in substance ever since.
The first act regulating interest for the use of money in lêw
Hampshire was passed February 12, 1791, which fixed the rate at
six per cent, and if more was taken, three times the excess was
forfeited, one moiety to the prosecutor and the other moiety to the
use of the county in which the oiFense was committed, with costs
of prosecution, and this law has never been materially changed.
The first act against usury in the State of Maine was passed in
1821, which fixed the rate of interest at six per cent, and a party
who took a greater rate forfeited the whole sum, principal and
interest. This act was amended in 1834, 'by which, in case of ille-
gal interest, the excess only was forfeited, and the provisions of the
act as amended were in force until the law now in force in the
State was passed, which leaves the parties free to agree upon any
rate of interest they please.
In the State of Rhode Island, an act was passed in 1767, which
was amended in 1795, and again in 1817, by which the rate of
interest was fixed at six per cent. In 1822 a new act was passed
retaining the legal rate of interest at six per cent, and in case
more was agreed to be paid, the contract could only be enforced
for the principaland legal interest and by the law now in force
;
any agreement which the parties may make, in respect to the rate
of interest, may be enforced.
The first statute against usury in Connecticut was published as
early as 1718, which fixed the legal rate of interest at six per cent,
and declared all contracts by which more was reserved wholly
void. This act was amended from time to time, but not substan-
tially varied until the passage of the law now in force in that State
upon the subject of usury and interest, and which is noticed in a
subsequent chapter.
The first act against usury in Df ew
York was passed by the colo-
nial Legislature in 1717, which fixed the rate of interest at six per
cent, and in its other provisions was similar to the English statute
of Queen Anne. The next year the act was amended, raising the
rate of interest to eight per cent. In 1737 the rate was reduced
to seven per cent, and the act, as thus amended, continued without
substantial variation until the Revised Statutes of 1830 went into
effect, which, as amended in 1837, contain th§ law upon the sub-
ject now in force in this State.
52 i-^W" OF USURY.
The first act against usury in New Jersey was passed in ITSS^
which fixed the rate of interest at seven per cent, and declared ali
contracts reserving a greater rate utterly void, and, if anything was
received on a usurious contract, it was to be forfeited. In 1823
the legal rate of interest was reduced to six per cent, and the act,
as thus amended, continued in force until the adoption of the
present statute upon the subject in the State.
In the State of Delaware, the rate of interest was fixed, by an
act of the Legislature, passed in 1759, at six per cent, and any per-
son taking more forfeited the whole debt, one moiety to the State,
and the other to the person prosecuting ; and this law has never
been materially changed.
In Pennsylvania, the first colonial act fixed the rate of interest
at eight per cent, but in 1700 the same was reduced to six per
cent, and, if more was received, the money or thing lent was for-
feited. The 1700 was repealed in 1705, and eight per cent
act of
as the legal rate of interest restored but in 1723 the act of 1700
;
was re-enacted, and thus the law stood substantially until the law
at present in force in the State went into effect.
The first and usury, in Ohio, was passed
act in respect to interest
by which was repealed by an act
the territorial Legislature in 1795,
of the same Legislature in 1799, and the rate of interest fixed at
six per cent, and, if more was reserved, the excess was forfeited.
The first act of the State Legislature upon the subject was passed
in 1804, which did not materially alter the act of the territorial
Legislature then in force, and the law has remained substantially
the same ever since.
In Michigan, the territorial Legislature passed an act in 1833,
fixing the legal rate of interest at seven per cent, and the same was
amended by the State Legislature in 1846, and the act, as thus
amended, is thepresent law of the State.
The acaugainst usury in Maryland was passed in 1692, by
first
which the rate of interest for the loan of money was fixed at. six
per cent, and for the loan of tobacco and other property at eight
per cent and any contract which reserved more than legal interest
;
was declared to be utterly void, and, if the illegal interest was

actually paid, treble the value of the money
or goods taken was
forfeited. In 1704 a substantially similar act was passed, which
has continued, with no material variation, until the present day.
In Yirginia, in 1730, the Legislature passed an act fixing the rate
;
HISTORY OF UBVKT. 53
of interest at six per cent. In 1734 the former act was amended,
reducing the rate to five per cent, and giving the prosecutor his
costs. The provisions of this act, as thus amended, were in force
until 1796, when another act was passed, taking efi'ect in May,
1797, which raised the rate to six per cent, which has continued to
be the rate ever since. The penalty for taking usury, under the
original and subsequent acts, was a forfeiture of twice the amount
of the debt, recoverable in an action qid ta/m.
The original act relating to usury and interest in North Caro-
lina was passed in 1741, and fixed the rate of interest at six per
cent, and all contracts reserving a greater rate were declared to be
void. This act, although several times amended, has been sub-
law of that State up to the present time.
stantially the
In South Carolina, a law was passed against usury in 1719, and
another in 1721, which prohibited parties taking more than ten
per cent for the use of money, under the penalty of forfeiting
treble the amount of the principal or thing loaned. In 1748 the
rate of interest was reduced to eight per cent ; and again, by a law
passed in 1777, the rate was reduced to seven per cent. The clause
in the previous acts imposing the penalty for taking more than the
legal interest was repealed in 1830, but no contract, by this act,
could be enforced for anything but the principal and legal interest
and thus the law continued until the passage of the act at present
in force in that State.
The first act against usury in Georgia was passed in 1759, which
fixed the rate of interest at eight per cent, but in other respects it
was similar in all its provisions to the British statute of Queen

Anne. This act was repealed, or essentially modified, in 1822, so
that contracts in which more than eight per cent interest was
reserved were not to be void, but the principal due thereon might'
be recovered at law, but no more. The act of 1822 continued in
force until 1845, when the law at present in force in the States was
passed.
In the State of Florida, an act concerning usury and interest
was passed in 1822 two acts were passed in 1829 to regulate the
;
rate of interest; another was passed upon the subject in 1832,

which was and the rate of interest fixed
virtually repealed in 1833,
at eight per cent, where no rate of interest was expressed in the
contract, but the parties were allowed to agree upon a higher rate
not exceeding ten per cent, and, if more was reserved, the whole
;;
54 LAW OF U8UBT.
interest was This last act was repealed in 1844, and the
forfeited.
rate of interest fixed at six per cent, in the absence of any

stipu-
lation upon the subject, but the parties were at liberty to raise the
rate to eight per cent, with the previous penalty for taking more
than the legal rate ; and thus the law stood until the passage of
the act now in force in the State.
The first act in respect to interest in Alabama was passed in
1805, and fixed the rate at six per cent. In 1818, another act
was passed allowing parties to agree, in writing, upon any rate of
interest ; and in 1819, still another act was passed, which has been
once or twice amended, and is still the law of the State.
In the State of Mississippi, the rate of interest was fixed, in
1822, at eight per cent, and whenever it was ascertained that
more had been reserved, the principal sum only could be recovered
but in cases of loan of money, the parties might agree upon a
and the contract be enforced. This
rate as high as ten per cent,
continued in force until 1842, when the law at present in force
was passed.
In Tennessee, an act was passed in 1819, making usury an
offense, but retaining the rate of interest theretofore recognized
and, in 1835, the law now in force in the State was passed, the
provisions of which will be given in a subsequent chapter.
By the Civil Code of Louisiana, adopted at an early day in the
State, itwas declared that interest is either legal or conventional
and the rate of legal interest was fixed at five per cent, and con-
ventional interest, to be stipulated by the parties, not to exceed ^
ten per cent. This continued to be the law until the act now in
forcewas passed, in 1860, and which is incorporated into the
Eevised Statutes of 18Y0.
The first act regulating interest in the State of Arkansas was
approved in February, 1838, by which the rate was fixed at six
per cent ; but the parties were permitted to agree, in writing, for
the payment of interest not exceeding ten -per cent, and all bonds
and other securities in which illegal interest was secured were
declared to be void, except that negotiable paper in the hands of
an indorsee or holder who had received the same in good faith
and for a valuable consideration, without actual notice of the
wrong, could not be impeached for usury, and when illegal inte-
rest was paid, the excess could be recovered back. Such was the
law until the adoption of the present State Constitution, which
HISTORY OF aSUBY. 55
prohibits the passage of any law limiting the parties to any rate
of interest for which they may be pleased to agree-
In the State of Texas, previous to the adoption of the present
Constitution of the State, the legal rate of interest was fixed at
eight per cent, but the parties were at liberty to agree upon any
rate not exceeding twelve per cent. The present Constitution
upon the subject is the same as that of Arkansas.
In California, the act in respect to interest was passed in 1850,
and the same is now in force, the provisions of which wiU be
given in a subsequent chapter. And in respect to Oregon,
Nevada, Nebraska, Kansas, Iowa, Minnesota and Wisconsin, they
having been so recently organized as States, there is nothing to be
said relating to their laws regulating interest, except to give the
acts now in force in those States, which wiU all be found in a
subsequent chapter.
The history of usury in Missouri is told in a few words. The
first act of the State was passed in 1834, and fixed the rate of
interest at six per cent ; but the parties to a contract might stipu-
late for a higher rate, not exceeding ten per cent, and if more was
reserved, the whole interest was forfeited, and only the principal,
without any' interest, could be collected. This act, although
amended several times, continued to be the law until the act now
in force was enacted and approved.
The first act against usury in Kentucky was passed in 1798,
under which a contract reserving more than legal interest was
void. In 1819, this act was repealed, and the rate of interest fixed
at six per cent, and if a higher rate was agreed upon, the excess
could not be collected, but the instrument was valid for the princi-
pal and legal interest ; and this act is substantially in force at the
present day.
In the State of Illinois, an act was passed in 1833, by which the
rate of interest was fixed at six per cent, but providing that when
the parties expressly agreed upon an amount of interest not
exceeding twelve per cent it shoidd be legal. A higher rate than
twelve- per cent was forbidden under a forfeiture of threefold the
amoimt of the whole interest reserved, one-third to the borrower,
and the other two- thirds to the treasurer of the county in which
the suit was instituted to recover the amount of principal and
interest. This act was several times amended, and in some respects
56 i^w OF nsuRT.
changed, until the law was passed which is in force in the State at
the present time.
In Indiana, by an act passed in 1831, any rate of interest could
be taken, provided the parties agreed therefor in writing, and the.
agreement was signed by the party to be charged. In 1838,
another act was passed which fixed the rate at six per cent, unless
the parties stipulated for a higher rate of interest in writing and
signed by the party to be charged, but in no case could more than
ten per cent be taken ; and any person taking illegal interest was
subject to be indicted, and upon conviction be made to pay a fine
to the State, for the use of the county treasurer of the county in
which the offense was committed, of double the amount of the
excess of interest received above the amount allowed by law.
This continued to be the law until the act was passed which, at
present, is in force in the State. Such is briefly the history of
usury in the 'several States; and it will be observed thatin most
cases statutes have existed to prohibit the taking of illegal interest,
although in several of the States the laws against usury have
been considerably relaxed in comparison with those which were
originally enacted.
CHAPTER ly.
THE POLICY AND PEOPEIETT OF USTIET LAWS — AEGTJMENTS AND

OPUTIOH'S UPON THE SUBJECT.
It is always more important- to know what the law really is, than
to be able to give a satisfactory reason for it. At the same time, a
correct idea of the policy of an enactment will the better enable
one to determine the light in which the same may be viewed by
the courts, for
it cannot be disguised that a decided public opinion
has its upon adjudication. In respect to the policy of

influence
statutes against usury, thereis now, and always has been, a great
variety of opinion. The first law to prevent usury, that is, the
taking of more than legal interest for the forbearance of money,
in England, was, as we have seen,the statute of Henry VIII,
passed in the sixteenth century. Previous to that, laws had existed
making it penal to take any interest for .the loan of money.
This act was subsequently made more stringent, but restored in
: ;
POLICr OF mUBT LAWS. 57

the thirteenth year of the reign of Queen Elizabeth, in the year of
our Lord 1570, and from the passage of the act of 13 Elizabeth,
laws existed in some form for the suppression of usury, until
the act of 17 and 18 Victoria, chapter 90, by which all
laws then in force upon usury were repealed. Daring all this
long period, the propriety of usury laws was frequently discussed,
both in England, on the continent of Europe and in the American
States. Lord Bacon, in one of his essays, civil and moral, exam-
ined the arguments^!? and con., in which he says " Many have
:
made witty invectives against usury. They say that it is pity the
devil should have God's part, which is the tithe ; that the usurer is
the greatest Sabbath breaker, because his plow goeth every

Sunday ; that the usurer is the drone that Virgil speaketh of
'Ignavum fticos pecus a praesepitua arcent;'
that the usurer breaketh the first law that was made for mankind
after the fall, which was, m swdore imltus tui comedespanem Umm ;
that usurers should have orange-tawny bonnets, because they do
Judaize ; that it is against nature for money to beget money, and the
like. **
Few have spoken of usury usefully." He then opens up
the " incommodities " and " commodities " of usury, and eondudes
that by " the balance of commodities and discommodities -of usury,
two things are to be reconciled ; the one, that the tooth of usury be
grinded, that it bite not too much ; the other, that there be left open
a means to invite moneyed men to lend to the merchants, for the
continuing and quickening of trade." And finally he says " that
it is better to mitigate usury by declaration than to suffer it to
rage by connivance" {Bog. Essays, Ow. cmd Mor., No. 41).
Somewhat later, John Locke, the great English philosopher,
declares, " money is an universal commodity, and is as necessary
to trade as food and everybody must have it at what
is to life,
rate they can get it, and invariably pay dear when it is scarce
you may as naturally hope to set a fixed price upon th.e use of
houses or ships as of money. Those who will consider things
beyond their names will find that money, as well as other commo-
dities, is liable to the same change and inequality, and the rate of
money is no more capable of being regulated than the price

of land." Later still, Jeremy Bentham, the English judicial
philosopher, in treating of the usury laws of England, said :
" As
well might a cla.use be added fixing and reducing the price of
horses. It may be said against fixing the price of horseflesh tha+
8
58 LAW OF vauBT.
different horses may be more

of different values. I answer, not
different than the values which the use of the same sum of money
may be of to different persons on different occasions " {Bmth. Def.
of JJswry, 82). Lord Chief Justice Best, in 1825, in delivering
the unanimous opinion of the twelve judges in the House of Lords
upon a question submitted to them under the English usury laws,
said :
" The supposed policy of the usury laws in modern times is
to protect necessity against avarice, to fix such a rate of interest as

will enable industry to employ with advantage a borrowed capital,
and thereby promote labor and increase national wealth, and
to
to enable the State to borrow on better terms than could be made
if speculators could meet the ministers in the money market on
equal terms. 'Laws framed on these principles are limited to the
countries in which they are made. The foreign borrower wants
not the protection of our laws, nor can it be extended to him. We
may declare a contract void, but notwithstanding such declaration
it may be enforced in the courts of the country in which it is
made, if it be not repugnant to the laws of that country. "We leave

the industry of other countries to the care of their respective gov-
ernments. I will not say that it is impossible that our capitalists
may be tempted by the high rate of interest in other countries to
send money out of their own. I believe that our own government
and commerce were inconvenienced by the large loans made by the
servants of the India Company to the INâbob of Arcot. But the
risk of loans to persons living out of the reach of British laws is so
great that in general much capital will not be drawn by those out
of the country " {House of Lords, 3 Bing. H., 193 ; S. C, 11
Mig. G. L. R., 93, 95). Lord Henry Brougham, late high chancel-
lor of England, when in the House of Commons in 1816, gave the
opinion :
" The repeal or modification of the usury laws is a meas-
ure, in the present age, which nearly all mankind agree is perfectly
safe, and calculated measure of relief, and is,
to afford the greatest
besides, innocuous alike to the borrower, to the lender and to the
State." Again " The greatest characters of the age have despised
:
these laws. Sir Francis Baring, more than thirty years ago, strongly
denounced them as injurious to those for whose benefit they were
intended." And Mr. James Birch Kelly, in his " Summary of the
History and Law of Usury, its Policy, and Suggestions for its
Amendment," published in London in 1835, says :
" All experience
teaches us how unprofitable it is for the law to fix a maximum
OPINIONS BBSPECTING USURY LAWS. 59
rate of interest applicable to every period. When there is little
demand money, it can be borrowed for less than the legal rate
for
of interest on good security. "When the contrary is the case, the
law is evaded and more than legal interest given for whatever may
;
be the municipal regulation, there is no axiom better established

than that money, like water, will always find its own level ;' that
'
it isgoverned by the same rules, as to production and distribution,

which affect all other merchantable commodities, and that the rate
of interest for its use is no more capable of being- regulated by
law, than are the rates of insurance or the price of labor, and that
'free trade in money is the only way of rendering it abundant' "
{Kelly on Usury, 187). These and numberless other opinions and
arguments put forth in favor of " free trade in money," together
with the general spirit of legal reform in England, have produced
the repeal of all laws relating to usury in that kingdom, and the
whole matter of interest on money loaned is now regulated there
by the voluntary contract of the parties.
Grotius, the learned Dutch jurist and writer of the seventeenth
century, speaking of interest for the use of money, observes " If :
the compensation allowed by law does not exceed the proportion

of the hazard even, or the want felt by the loan, its allowance is
neither repugnant to the revealed nor the natural law but if it ;
exceeds those bounds, it is then oppressive usury and though the ;
municipal laws may give it uniformity, they can never make it
just " {Be Jwre BelM et Paois, 2 l, ch. 11, § 22).
From the earliest history of this country, the policy of laws

against usury has been a matter of discussion, although but little
has been put forth upon the subject, except a repetition of the
arguments and positions used and taken by the different writers
upon the other side of the Atlantic. It may be safely affirmed,
however, that in most of the American States which were organ-
ized within the 'first fifty years of the Republic, the experiment
was, at some time, tried, of doing without usury laws of any kind,
but the experiment was regarded as a failure, and statutes were
ultimately passed fixing the rate of interest, and prohibiting the
taking of any more than the legal rate. Perhaps the opinions of
the opponents of usury laws in the States are as fairly represented
as anywhere in a petition addressed to the Legislature of Massa-
chusetts in 1834, from certain citizens of Boston, in which it was
asked that the then existing laws in that State against usury be
60 ^^^ OF USURY.
repealed. In the judgment of the petitioners, as declared in their

petition, all usury laws, so far as they limit the rate of interest,
are founded on erroneous principles, and are at variance with the
commercial spirit of the age ; that every article of human traffic,
whether money or any other thing, is alike subject to fluctuation,©!

value, and that consequently the lasLrket price of them all is con-
stantly liable to change; that the price of money, or, more pro-
perly speaking, the price of its use, not less than the price of lumber,
corn, tobacco, cotton or any other great commercial staple, is and
must be regulated by the extent of the demand in the market,
and that every attempt to fix their value, and render the price of .
any of those articles invariable, is not only vain, but wholly unjust,
and that it is, in the case of all these commodities, an equal
infringement of private rights ; that where the use of money in
the regular course of business produces a large amount of profit,
the value of that use is proportionately increased that the law is ;
wrong in imposing any restraint upon the absolute freedotn of

commercial transactions, which, in order to be successful, must be
and that in the case of money, which represents
left unfettered,
every other commodity, the evil is far greater than it could be in

the case of any other article of traffic; that whUe the restrictions
were intended to favor the interests of borrowers, they were even
more injurious to borrowers than to lenders. This the petitioners
attempt to demonstrate ; and, for the reasons stated, it was asked
that the law of the State be so modified as to leave the rate of
interest, like the rate of premiums pn insurances, perfectly open
to contract, providing that in all cases where and
interest occurs,
the particular rate has not been expressly ageeed upon between
the parties, six per cent remain the legal rate. The petition was
referred to a committee, who made their report to the Legislature,
in which they indorsed fully the views and arguments of the
petitioners ; but believing that any sudden and extensive changes
in the laws were inexpedient, they recommended a repeal of the
usury laws only so far as they applied to promissory notes and bills
of exchange, payable not less than three months from date the •
evils.being felt more seriously in reference to this class of contracts

than any other.
These views have been reiterated and elaborated upon in most
of the essays, addresses and reports which have followed the
Boston memorial, and, in accordance with them, the legislation
;
OPINIONS RESPECTIN& USURY LAWS. 61
adverse to usury laws in this country has been obtained. It

seems to be the decided opinion of the enemies of usury laws
everywhere, that the merchant or manufacturer, with his eyes open,
provided he be neither a minor, of weak mind, under duress or
circumvented by fraud, is as competent as the Legislature to judge
whether or not it will be to his advantage to borrow at the rate of
ten or twelve or a greater per cent fbr if he is deemed incompe-
;
tent, in perfect freedom, to borrow on fair terms, and liable to be

imposed upon, owing to the pressure and urgency of his necessi-
ties, how, it is asked, can he be deemed more competent (the same
'
causes operating) to sell either his goods, his life estate, his lease
hold, his reversion, to bargain for the giving a, post obit bond, or
granting an annuity? Yet, it is said, the law, in its kindness, pre-
cludes him from borrowing on what it deems disadvantageous terms,
but cannot prevent his selling his property on any terms, however
usurious, though any one knows that the loss he would sustain in
borrowing an increased rate of interest may bear but a small
at
proportion to what he might suffer by a forced sale.
These arguments appear plausible, but some of them are more
plausible than real.It seems to be assumed that the loan of
money is the same in principle as the loan of anything else, and that
the one should be as untrammeled as the other ; while the fact is,
that money is an from merchantable com-

article distinguishable
modities generally, and is not subject to the same rules which

govern them, and every day's observation shows that men are
always less liable to be impelled by their necessities to agree to
pay an exorbitant price for an article of property than for the use
of money. Dr. Johnson maintained that usury laws were as
necessary for the protection of lenders as for borrowers ; that the
former were benefited by the removal of the temptation afforded
by the prospect of extravagant interest to lend, on insufficient
and there is much in the idea.
security,
But it is said, and, in fact, truly, that usury laws are vestiges
of the times when the principles of commercial polity were
wholly unknown ; when the Legislature extended its interference
with the rights of individuals to almost every act of private life
when the prices of bread, cloth, leather, wine and other necessa-
ries of life were fixed by statutes. It does not follow, however,
that because these laws first originated in the days of political
darkness, when numberless legal abuses also had their origin, they
;
Q2 L-^W OF VSURT.
should th&refore be expunged from the statute books.

On the
contrary, it is contended by many great and good men, that,
leooMse the usury laws have been hallowed by the

wisdom and
experience of our ancestors, they ought not to be abolished.
The venerable and learned commentator upon American law,

the late Chancellor Kent, in a very lucid opinion which he
gave
in a usury case then before the Court of Errors of the State
of New York, an able extract from which is given in a previous

chapter {mde cmte, ch. 2.), after examining the subject at con-
siderable length, and referring to the history of the laws against
usury from the earliest periods, asks " Can we suppose that a
:
principle of moral restraint, of such uniform and universal adop-

tion, has no good sense in it ? Is it altogether the result of monk-
ish prejudice ? Ought we not rather to conclude that the provision
isadapted to the necessities and the wants of our species, and
grows out of the natural infirmity of men, and the temptation to
abuse inherent in pecuniary loans ?" He then proceeds " The :
question of interest arises constantly, and intrudes itself into

almost every transaction. It stimulates the cupidity for gain, and
sensibly affects the heart,and gradually presses upon the relation
of debtor and creditor. government is continually placing
Civil
guards over the weaknesses, and checks upon the passions of men
and many cases might be mentioned, in which there is, equally
with usury laws, an interference of the lawgiver with the natural
liberty of mankind to deal as they please with each other. But
no person doubts of the necessity and salutary efficacy of such
checks. On the same principle, that unlimited usury may be per-
mitted, the law ought to allow the creditor to insert in his bond
a provision for compound interest whenever the stipulated interest
becomes due and is not paid. Nay, parties ought to be allowed
to agree that if the condition of a bond be not performed at the
day, the penalty shall not only be nominally forfeited, but literally
exacted. I should apprehend that if these things were to be per-
mitted, there would not be strength enough in the government
to support the administration of justice. It is an idle dream to
suppose thatwe are wiser and better than the rest of mankind.
Such doctrines may be taught by those who find it convenient to
flatterpopular prejudice but the records of our courts are daily
;
teaching us a lesson of more humility. And, I apprehend, it

would be perilous in the extreme to throw aside all the existing
OPINIONS BESPECTINO USURY LAWS. 63
ctecks npon usurious extortion, and abolish or traduce a law which
is founded on the accumulated experience of every age.
" The Eoman commonwealth, if we may place reliance upon its
entire history, tried every experiment on this interesting subject.

The Romans had no law regulating the interest ofmoney, and left
parties to their own contracts, until the law of the Twelve Tables,
according to Tacitus, or the law of the tribunes, in the year of
Rome 398, according to Montesquieu. The consequence was,
unending quarrels between the patricians and plebeians, and popu-
lar secessions to the mens sacer, in which one party pleaded the
obligation, and the other the severity, of their contracts. Interest
was then reduced to the smallest allowance, and finally abolished,
which led to a still more frightful usury, until, at last, the empe-
rors were obliged to allow, but regulate and limit, the charge of
usury. So true it is, according to the President Montesquieu
{Esprit des Low, Im. 22, eh. 21, 22), who has discussed this subject
at large, that extreme laws produce extreme evil ; les loix exl/remes
da/nsle iienfont vcdtre le mal extreme. The Romans, at one time,

had no laws against usury, and, at another time, they allowed no
interest; and these are the extreme laws which this celebrated
civilian condemns.
"Lord Eedesdale said, in 1803 {1 Sch. d; Zef., 196, 312), many
years after Jeremy Bentham, to whom the learned counsel referred
for an able defense of usury, had first published his letters, that the
statute of usury was founded on great principles of public policy.
It was intended, he said, to protect distressed men, by facilitating
the means of procuring money on reasonable terms, and by refa-
sing to men who sit idle as high a rate of interest, without hazard,
as those can procure who employ money in hazardous undertakings
of trade and manufactures. I trust that theoretic reformers have
not yet attained, on this subject, any decided victory over public
opinion. Mr. Bentham contends that we ought not so much as to
wish '
to see the spirit of project in any degree repressed.' It may
be so but I hope I may be permitted to wish that the first experi-
;
ments of his projects may not be made within these walls. The
statute of usury is constantly interposing its warning voice between
the creditor and the debtor, even in their most secret and danger-
ous negotiations, and teaches a lesson of moderation to the one,
and offers its protecting arm to the other. I am not willing to
withdraw such a sentinel. I have been called to witness, in the
g4 I'-AW or VSUBT.
course of my official life, too many victims to the weakness and to

the inflamed passions of men " {Dmihcmh v. Oould, 16 Johns. E..
367, 378-380).
The venerable chancellor is regarded asvery competent autho-
rity upon the question here discussed. His sagacity and great
learning particularly fitted him not only to give a true exposition
of any given enactment, but to judge of the necessity and pro-
priety of the enactment itself. From this opinion, it is quite clear
that, in the judgment of this eminent jurist, the same necessity

existed in his day for usury laws as that which called for them in
earlier times, and that he did not sympathize with the sentiment
that such checks are prejudicial to the exercise of enterprise, or
stumbling-blocks in the way of commercial advancement. And it
may be added, that, in most cases, the objections to these laws
emanate from money-lenders themselves, and they are usually most
prominent in making efforts to obtain their repeal; and, further,
that it is the daily observation of every discerning business man,
that no person can continue for any considerable length of time in
any legitimate calling who is in the constant habit of borrowing,
money at exorbitant interest ; his failure is a foregone conclusion,
and it is only a question of time. The probabilities, therefore, are,
that these legal restraints will still be continued in many, or most,
of the American States, and that tlie time is, at least, far distant,
when the system will be permanently abandoned.
CHAPTER V.
THE STATUTES IN FOEOB IN RESPECT TO INTEREST AND USUET IN THE
STATES OF NEW TOEK, VERMONT, NEW HAMPSHIEE, MAINE, MA8SA-
RHODE ISLAND, CONNECnOUT, NEW JEESET, DELAWAEE,
OHTJSETTS,
PBNNSZLVANIA, OHIO AND MICHIGAN TABLE OF THE RATES OF
INTEREST IN THOSE STATES EE8PECTIVELT.
Usury, as at present understood, is unknown to the common

law, and depends wholly upon statutory enactment.* It becomes
It was the opinion of Plowden, who wrote in the sixteenth century,

that usury exists at com-
mon law, notwithstanding the statute upon the subject. He says "
Where a statute or act of
:
Parliament is made concerning any point of common

law, the common law concernii.rr ihie
point Is changed, altered or affected by the statute
so far, only, as the statute expressly goes.
;
STATUTES RESPM0TIN9 INTEREST. 65
necessary, therefore, before entering upon the general discussion,
to examine the statutes of the several States upon the subject.

Formerly the taking of usury was regarded as a heinous offense,
and almost all of the States had statutes calculated to suppress it
many of them penal in their nature and others remedial. But for
many years the theory has been gaining ground that money, like
merchandise, should be regulated by the market, and even now
many of the States have no usury laws at all, and in those States in
which such laws exist they are quite various, and scarcely any two
of them are precisely alike. Those States which are now under-
stood to have statutes to suppress usury are Alabama, Delaware,
Illinois, Iowa, Kansas, Louisiana, Missouri, New Jersey. New
York, North Carolina, Yirginia and Wisconsin ; while in Pennsyl-
vania, Michigan, Mississippi and a few others of the States, the
rate of interest is prescribed, with a provision that, if more is agreed
to be taken, the excess shaU be forfeited. In most of the remain-
ing States the parties are left to regulate the subject at discretion,
by agreement, with a statute fixing the rate when no agreement
is made, that is to say, after the principal becomes due. Perhaps
the most stringent enactments to prohibit usury are those in force
in the State of New York. In this State, the provisions of the
statute are as follows The rate of interest upon the loan or for-
:
bearance of any money, goods or things in action is fixed at seven

dollars upon $100, for one year, and after that rate for a greater or
less sum, or for a longer or shorter time. No person or corpora-

tion is permitted, directly or indirectly, to take or receive in
money, goods or things in action, or in any other way, any greater
sum or greater value, for the loan or forbearance of any money,
•goods or things in action, than is before prescribed. And every
person who shall pay or deliver any greater sum or rate than is pre-
scribed, or his personal representatives, may recover such excess in
an action against the person taking or receiving the same, or his
personal representatives, provided the action be brought within
one- year after such payment or delivery. If such action be not
So, wheu an actof Parliament inflicts a new punishment for an old offense at common law, it
remains an offense, and punishable at common law, as it was before the act passed.^' He
still
admits, however, that the authority of Lord Oote is the other way, but insists that his opinions
do not claim universal submission, and adds " It is with the greatest difidence that I venture
:
to suggest that, in this instance, I feel under the necessity of withdrawing my assent to the
opinion of that great man " (Plow. Usury, 61 ), But it has long since been abundantly settled
by the highest judicial authority that iisury is illegal onl^ as it is made so b^ statute.
66 LAW OF USURY.
brought within the said year, and-prosecuted with effect, then the
said excess may be sued for, and recovered with costs, at any time
within three years after the said one year, by any overseer of thS
poor of the town where such payment may have been made, or by
any county superintendent of the poor of the county in which the
payment may have been made.
All bonds, bills, noteSj assurances, conveyances, all other con-
whatsoever (except bottomry and respondentia
tracts or securities
bonds and contracts), and all deposits of goods or other things,
whereupon or whereby there shall be received or taken or secured,
or agreed to be received or taken, any greater sum or value, for
the loan or forbearance of any money, goods or things in action,
than is prescribed as aforesaid, are declared void. And every per-
son offending against the foregoing provisions of the statute may
be compelled to answer on oath any bill that may be exhibited
against him in a court of equity for the discovery of any sum of
money, goods or things in action so taken, accepted or received, in
violation of the provisions of the statute, or either of them.
Every person who shall discover and repay or return the money,
goods or other things so taken, accepted or received, or the value
thereof, will be acquitted and discharged from any other or further
forfeiture, penalty or punishment which he may have incurred by
taking or receiving the money, goods or other things so discovered
and repaid, or returned. And it is farther provided that whenever
any borrower of any money, goods or things in -action shall bring
his suit in equity for discoverya"s aforesaid, it shall not be necessary
for him pay or offer to. pay any interest whatever on the sum or
to
thing loaned, nor can any court of equity require or compel the
payment or deposit of the principal sum, or any part thereof, as a
condition of granting relief to the borrower, in any case of a
usurious loan forbidden by the statute (1 B. S., T71, §§ 1-8 ; 1
Siat.atZm-ge, 725-727; 4 ih., 450).
For the purpose of calculating interest, the statute provides that
a month shall be considered the twelfth part of a year, and as con-
days ; and interest for any number of days less
sisting of thirty
than a month shall be estimated by the proportion which such
number of days shall bear to thirty ; and whenever, in any statute,
act, deed, contract or instrument, any certain rate of interest is
mentioned, and no period of time is stated for which such rate is
to be calculated, interest must be calculated at the rate mentioned.
STATUTES RESPECTING INTEREST. 67
by the year, in the same manner as if the words " per, annum," or
"by the year," had been added to such rate (1 R. 8., TT3,
§§ 9, 10 ; 1 Stat, at Large, 727). The statute, however, provides

that no corporation shall interpose the defense of usury in any
action {Imws of 1850, cA. 172; 3 Stat, at Large, 681). The sec-
tion of the statute which renders void bonds, bills, notes, etc., for
usury, as it was originally passed and incorporated into the Eevised
Statutes of 1830, contained this reservation :
" But 1;Jiis section
shall not exteiid to any bills of exchange or promissory notes paya-
ble to order or bearer, in the hands of "an indorsee or holder, who
shall have received the same in good faith and for valuable con-
sideration, and who had not, at the time of discounting said bill or
note, or paying such consideration for the same, actual notice that
such bill or notehad been originally given for a usurious conside-
ration, or upon a usurious contract." But it was very soon dis-
covered that this reservation entirely defeated the object of the
statute, and that, in point of fact, the practice of usury was more
common and more oppressive than before the passage of the act;
and, therefore, in 1837, the Legislature repealed the objectionable
reservation. The act of 1837 further provides that whenever it
shall satisfactorily appear, by the admissions of the defendant or

by proof, that any bond, bill, note, assurance, pledge, conveyance,
contract, security or any evidence of debt has been, taken or
received in violation of the provisions of said title or of this act,
a court of equity may same to be void, and enjoin any
declare the
prosecution thereon, and order the same to be surrendered and
canceled. The act also declares that any person who shall, directly
or indirectly, receive any greater interest, discount or consideration
than is prescribed by the statute, shall be deemed guilty of a mis-
demeanor, and on conviction thereof shall be punished by fine, not
exceediug $1,000, or imprisonment, not exceeding six months, or
both ; and makes it the duty of all courts of justice to charge the
grand jury especially to inquire into any violation of the provisions

of the act. And the statute contains the further provision, that
every plaintiif examined as a witness pursuant to the act, or any
defendant under the same, who shall swear falsely, shall, upon
conviction thereof, suffer the pains and penalties of willful and
corrupt perjuiy ; but the testimony given by any plaintiff, or the
answer of any defendant, made pursuant to the statute, cannot be
used against such person before any grand jury, or on the tjial of
68 I'A.W OF U8UBT.
any indictment against such person {Lome of 1837, oh. 430;

i Stat, at La/rge, 459, 460).
These are the provisions of the statutes of New York for the
prevention of usury, at present in force. It will be observed that
the provision which declares the contract or instrument void for
usury is different in its phraseology from that which declares the
tahmg of usury a misdemeanor. In the former case, the agree-
ment to take usury renders the transaction void, while in the latter
it requires both the agremnent to take, and the acâZ takmg usury,
to constitute the offense.

By the statutes of the State of Vermont, no person can legally
take, directly .or indirectly, more than six per cent interest for the
forbearance of money ; and, whenever a greater rate of interest
shall have been paid, the person paying the same may recover back
the amount so paid above legal interest, with interest thereon from
the time of payment. In ease the excess of interest only has been
paid, or the same may have been included in the security for the
loan,and an action be brought for the recovery of the loan, and
the usury be pleaded as a defense, such excess may be allowed and
deducted in the assessment of damages.
And in the State of ]S"ew Hampshire, the statute provides that
the legal rate of interest shall be six per cent, and that whoever
shall receive more than the legal rate shall forfeit three times the
excess to the person who shall prosecute for thesame ; but no
transaction is rendered void or voidable by reason of usury. The
consequences resulting from usurious transactions in this State, are
not as serious as in some of the States, and yet they are sufficiently
so to make it important to understand the distinction between
what is and what is not usury.
In the States of Maine and Massachusetts the legal rate of

mterest is six per cent, unless the parties stipulate in writing
for
a different rate, in which case the same may be recovered ; in
other words, there is no law against usury in these two States, and
the parties areleft free to agree in writing for any
rate of interest,
and theagreement wiU be binding. And the statutes of Rhode
Island upon the subject are substantially the same.
In the State of Connecticut, the statute forbids
the taking of
more than six per cent interest for the use of money,
or goods,- or
any property whatever, and any person who shall take illegal
interest forfeits such excess, one-half to him who shall sue there-
STATOTES BESPBCTINa INTEREST. 69
for and prosecute Ms suit to effect, and the other half to the
treasury of the State. And all contracts reserving more than
legal interest are declared void as to the whole interest, and in
any action brought upon the contract the amount of the original
loan without interest can only be recovered. If the illegal
interest has been paid upon the usurious contract, the same wiU
be deducted from the amoimt loaned and in every action upon an
;
alleged usurious contract the defendant may set up the usury,

when the plaintiff may be made to testify, and the court will
adjudicate the matter. But contracts to pay taxes and insurance
upon the sum loaned, or upon the estate mortgaged to secure the
same, are in no case to be deemed usurious. And interest east
according to Eowlet's tables is declared not to be usurious {Gen,.
Stat. 1866, tit. 66).*
In New Jersey, parties are forbidden to take more than seven
per cent interest on money or property loaned ; and all notes, bills,
bonds, mortgages, contracts, covenants, conveyances and assur-

ances, on which a higher rate shall be received or taken, are
declared utterly void. Any borrower of money, etc., may exhibit
his bill in chancery against the lender, and compel him or her to
discover whether there was any usury in the transaction, and if
the court find that there was, the lender will be obliged to accept
the amount of the original loan without interest, and pay the
costs of suit
;
provided th4t the bill be exhibited before any suit
shaU have been instituted to recover the penalty provided in case
of illegal brokerage. But no bond, mortgage or other security
for thepayment of money, issued by a railroad or canal corporation
under the laws of the State, will be deemed invalid because the
same may be sold or assigned by such corporation below the par
value thereof, provided the same be valid on its face {Nixon's
Big. of ISeS,^. 43T, 439).
In the State of Delaware, the legal rate of interest is fixed at
six per cent, and any person taking, directly or indirectly, more
than the legal rate for the loan or use of money, is subject to for-
* Since this chapter was in manascript, and dnring the session of 1873, the Legislature of
Connecticut passed an act absolutely repealing all usury laws in the State, and authorising any
contract in writing for the payment of interest. And where there is no stipulation in the
writing in respect to the rate of interest, the present statute leaves the rate at six per cent.
The late law, however, is retained in the text, as it may he convenient for reference in con
nection with some of the authorities cited from the courts of that State.
70 J^^W OF USURY.
feit and pay, to any person who will sue for the same, a sum ec[ua]
to the money lent, one-half for the use of the person so suing,
and the other half for the use of the State (Revised Code of
1852, ch. 63, § 1).
In Pennsylvania, the rate of interest as fixed by statute is six
per cent, with some exceptional cases specially provided for.

Usurious interest can in no case be collected, and when the same
may have been voluntarily paid, it can be recovered back but the ;
action therefor must be commenced within six months from the

time of payment, or it will be barred. Negotiable paper, which
has been received lonajide in the ordinary course of business, can-
not be impeached for usury ; that is to say, the payment of nego-
tiable paper in the hands of a lonafide holder cannot be avoided
as to either principal or interest, even though it may have been
usurious in its inception {Pii/rderi's Dig., 1862, jp. 561).
In the State of Ohio, the legal rate of interest is six per cent,
although the parties may agree upon a higher rate, not exceeding
eight per cent, and the same caij be enforced. If the contract is
usurious, thatis, if it reserves interest at a higher rate than is
allowed by the statute, the same can only be enforced for the ,
principal and interest at six per cent. And in the State of Michi-
gan, the legal rate of interest, in the absence of express agreement
upon the subject, is seven per cent ; but the parties may agree in
writing for the payment of a higher rate, not exceeding ten per
cent. Contracts for the payment of usurious interest can only be
enforced for the principal and legal interest, the excess only being
forfeited. ISTegotiable paper in the hands of a honafide holder, to
whom it has been sold,is collectible for the whole amount
received, principal and interest.

To repeat the rates of interest in the several States considered :
the rate in New Yorkseven per cent, in Vermont six per cent,
is
in New Hampshire six per cent, in Maine, Massachusetts, Connect-

icut and Ehode Island six per cent ; but parties may contract in
writing for any rate ; in New Jersey seven per cent, in Delaware
and Pennsylvania six per cent,
in. Ohio six per cent, or a higher
rate by agreement of the parties, not to exceed eight per cent, and
in Michigan seven per cent, with the right to the parties to agree
upon a higher rate, not exceeding ten per cent.
STATUTES BESPEOTING INTEREST, 71
CHAPTER VI.
THE STATUTES FOECE m m

BEBPECT TO INTEEEST AND USUET THE m
EEMAXNING STATES OF MAETLAND, TIEGINIA, WEST VIEGINIA, NOETH
OAEOLINA, SOUTH OAEOLINA, GEOEGIA, FLOEIDA, ALABAMA, MISSIS-
SIPPI, TENNESSEE, tOUISIANA, AEKANSA8, TEXAS, CALIFOENIA, OEB-
GON, NEVADA, NEBEASKA, KANSAS, MISSOUEI, IOWA, MINNESOTA,
WISCONSIN, ILLINOIS, INDIANA AND KENTITCKT —
PEDEEAL STATUTE
©N THE SUBJECT FOE NATIONAL BANKS —
TABLE OF THE EATES OF
INTEEEST IN THOSE STATES CONSIDEEED IN THIS CHAPTKE.
In the State of Maryland, the rate of interest established by law

is six per centum per annum, and any person exacting, directly
or indirectlyj for a loan of money, goods or chattels, to be paid in
money, above that rate, is deemed guilty of usury but no plea of ;
usmy is available against any legal. or equitable assignee or holder

of any bond, bill obligatory, bill of exchange, promissory note or
other negotiable instrument, when such assignee or indorsee or
holder shall have received the same for a iona fide and legal con-
sideration, without notice of aoy usury in the creation or subse-
quent assignment thereof. Any person guilty of usury forfeits
the excess above the real sum or value of the goods and chattels
actually lent or advanced, and the legal interest on such sum or
value, which forfeiture inures to the benefit of the- defendant who
shall plead and prove such usury and every plea of usury must
;
state the sum of money or the value of the property actually lent
or advanced, and the legal interest on the same, and the plaintiff
may recover such sum or value, with legal interest from the time
itwas lent or a'dvanced (1 Md. Code, Art. 95, §§ 1-5).
In Virginia, the rate of interest is six per centum per annum,
and no person upon any contract is permitted to take for the loan
or forbearance of money or other thing above the value of that
rate, and all contracts or assurances made directly or indirectly
for the loan or forbearance of money or other thing at a greater
rate are declared to Usury may be pleaded in general
be void.
terms, and the plaintiff may
reply generally, under which the par-
ties may give any evidence which would be proper if the
pleadings were special. Any borrower may bring an action
in equity against the lender, to discover if there be wrong
72 LAW OF USURY.
in the transaction, in which the defendant will he compelled

to discover, on oath, the fects of the case, and if it appears
that more than legal interest was reserved, the lender can only .
recover the principal money, or other thing, without interest, and

will he compelled to pay the costs of the suit. Any excess of
interest which may be paid in any case may be recovered back,
provided an action be brought therefor within one year after the
same was paid. Any. judgment creditor who apprehends that he
is in danger of loss by reason of usurious dealings on the part of
his debtor, may exhibit his bill in equity against the party dealing
with such debtor, and compel hiTin to discover, on oath, all the
facts, and if it appear that more than legal interest has been
received, the excess, or so much thereof as may be necessary, must

b? applied to the satisfaction of the plaintiff's demand, provided
that the bill must be filed within five years after the receipt of the
illegal interest. If any person shall take, for the loan or for-
bearance of money or other thing, interest above the legal rate, he
will forfeit double the value of such money or thing, one moiety
of which will go to the informer {Code of 1860, ch. 141). It
will be observed that, in ease of usury, the excess only is forfeited
when the proceedings are in equity, but if at law, the whole prin-
cipal and interest are forfeited. The statute 'of Yirginia also
provides that usury shall not be pleaded, in any case, by an incor-
porated company {Code of 1860, ch. 5Y, § 38).
*In the State of West Virginia, the legal rate of interest is
declared by statute to be six per cent, and all contracts to pay more
than this rate are void as to the excess, and no further. In an
action upon an alleged usurious contract, the defendant may plead,
in general terms, that the same is usurious, and under this plea
he may prove the usury, and the borrower may exhibit his bill
against the lender, setting up usury in a given transaction, and
thereby compel the lender to discover the facts and if it appear
;
that more than legal interest was reserved, judgment will be

entered in favor of such lender for the amount of the principal
and legal interest, but without costs {Code of 1868, oh. 96).
In the State of North Carolina, the legal rate of interest for
money or property loaned is fixed at six per cent, and persons
taking more than the legal rate will forfeit double the value
for-
borne. The statute also provides that all bonds, contracts and
assurances whatever, for the payment of any principal or
money
; _
STATUTES BESPBOTIN& INTEREST. 73
lent or covenanted, to be performed, upon or for any usury, where-

upon or whereby illegal interest shall be reserved, shall be void
and any person who, upon any contract, shall take or receive
illegal interest, will forfeit and lose, for every such offense, the
double value of the moneys or property lent, bargained or

exchanged ; the one moiety to the State, and the other to him
who will sue for the same {Mm. Code of 1855, ch. 114).
In Alabama, the rate of interest upon the loan or forbearance
of money, things in action or goods, is eight per cent ; and all con-
tracts for the payment of be enforced
interest at a higher rate can
only for the principal, and any interest has been paid, it must
if
be deducted from the principal, and a judgment rendered for the

balance only. All change bills and notes for a sum not exceed-
ing one dollar, issued or circulated in the State, without authority
of law, bear interest at the rate of one hundred per ceut {Rev.
Code of 1867, part 2, Utle 3, ch. 2, p. 406).
In Alabama, where usury is relied on as a defense, the repre-
sentative of the borrower is a competent witness to prove usury
by his belief, provided he has given ten days' notice to the plain-
tiff, or his attorney, of his intention to do so ; that is to say,
unless the plaintiff, being the lender, denies, on oath in open court,
the truth of the facts proposed to be sworn to by the defendant
{Ren}. Code, § 2715 ). And in any action, if it be made to appear
that usurious interest has been intentionally taken or reserved,
the defendant recovers full costs {Re^. Code, § 2781).
In the State of Louisiana, all debts bear interest at the rate of
five per cent, unless otherwise stipulated. Conventional interest
can in no case exceed eight, per cent, under pain of forfeiture of
the entire interest contracted ; andpay on
if any person shall
any contract a higher rate of interest than is allowed
by law,
either as discount or otherwise, the same may be sued for and
recovered within twelve months from the time of such payment.
Bankers and banking corporations are entitled to charge and
,
receive discount at a rate not greater than the maximum allowed

by law on conventional obligations and their other contracts are
;
regulated by the same laws in regard to interest as are applicable

to the contracts of individuals. The owner of any promissory
note, bond or written obligation may collect the same, notwith-
standing it may include a greater rate of interest or discount than
10
74 J^-^W OF USUUT.
eight per cent, although after maturity the same can onlj bear
interest at eight per cent {Rm. Stat. 1870, §§ 1883-1889).
In Missouri, where no rate of interest is agreed upon, the rate

is fixed at six per cent, but parties may agree in writing for the
payment of interest, not exceeding ten per cent, on money due or
to become due on contract. Persons are prohibited from taking
any more or greater interest than these rates and when usury is ;
pleaded, and the proof sustains the defense, judgment wUl be

.given for the principal and ten per cent interest, but an order will
be made that the whole amount of interest be set apart for the
use of the common schools of the county in which the suit may
be brought. Interest may be paid on interest, but it may not be
compounded, oftener than once a year {Gen.. Stat, of 1866,
ch. 89).
In the State of Kansas, the rate of interest is fixed at seven
per cent, unless a different rate is agreed upon between the par-
ties ; but parties to any bond, bill, promissory note or other instru-
ment in writing for the payment or forbearance of money, may
stipulate therein for a rate of interest not exceeding twelve per
cent. Payment of usurious interest, whether made in advance or
not, will be deemed payment of principal and persons contract-
;
ing for illegal interest will forfeit the entire interest, and will not
be permitted to recover any more than the original principal
{Gen. Stat, of 1868, ch. 51, as amended hy Laws of 1871, oh. 95).
In ISTebraska, the legal rate of interest upon the loan, or for-
bearance of money, goods or things in action, is fixed at ten per
cent, unless a greater rate, not exceeding twelve per cent, be con-
by the parties. If a greater rate of interest than is
tracted for
provided by law be contracted for or received, or reserved, and
an action brought on the contract, proof may be made of the
is
and when the fact is proved, only the principal can

illegal interest,
be recovered, without interest, and the defendant will recover

costs and if the interest has been paid, the same will be deducted
;
from the principal and the judgment entered for the balance.
,
Any person charged with taking illegal interest may be required
to answer on oath concerning it, and relief to a complainant, in case
of a usurious loan, may be given without payment or tender by
him of the principal sum {R0O. Stat, of 1866, oh. 28, as amended
hy LaAjosofl%Q1,p. 8).
In Iowa, the rate of interest is six per cent, unless the parties'
STATUTMS BB8PECTING INTEREST. 75
agree in writing, which they may legally do, for a different rate,
not exceeding ten per cent. The taking 'of any greater interest
than is allowed by law is expressly prohibited, upon a penalty of
the forfeiture of ten per cent upon the contract to the school
fund of the county where the suit is brought. And the iona
fide assignee of a usurious contract may recover of the usurer the
full amount of the consideration paid by him for such contract,
less the amount of the principal money loaned or due {Rev.

Laws of 1860, ch. T2).
In the State of Illinois, the rate of interest is fixed at six per
cent, unless the parties otherwise agree, which they may do, for
the payment of interest not exceeding ten per cent. If illegal
interest be contracted for, the whole interest will be forfeited, and
only the principal sum due can be recovered: Contracts made
payable in any other State or Territory, or in the city of London,
England, may be for the payment of interest according to the
laws of the place where they are made payable, and the same may
be fixed at the legal rate in {Gen. Stat, of 1869, ch. 54).
Illinois
-In Wisconsin, the legal rate of interest upon the loan or for-
bearance of money, goods or things in action is seven per cent,
except that the parties may contract for a greater rate, not exceed-
ing twelve per cent ; and any person paying a greater interest than
the law allows may recover, of the person who took or received
the sanie, treble the amount of the excess of interest paid. Only
the principal, without any interest, can be recovered in an action
upon any bond, biU, note, assurance, conveyance or other don-
tract or instrument, whereby there shall be reserved a rate of
interest exceeding twelve per cent. Any person violating the law
in respect to taking interest may be compelled to answer on oath
respecting the same ; but no person can avail himself of the bene-
fit of the law against usury, unless he first tender the principal
sum loaned to the party entitled to the same {Rev. Stat. 1858,
ch. 61). ,
In the State of Oregon, the rate of interest is fixed at ten per

cent, and persons are prohibited from taking more, except that the
parties to any contract may agree for the payment of interest at
the rate of one per cent per month, when the same may be reserved.
If it be ascertained, in any action upon any contract, that illegal
interest has been contracted for, the entire debt contracted is for-
feited to the school fund of the county where the suit is brought,
76 J^-^W OF VSURT.
and a judgment will be rendered against the defendant for the

original sum loaned, or" debt contracted, in favor of the State, for
the use of the common
school fund of such county, and against
the plaiutiff for costs. But a lona fide assignee of the usurious
contract may recover of the usurer the full amount paid by him
for such contract, provided such assignee had no notice of the usury
{Gen. Lcms, 1845-1867, ch. 24).
In the remaining States, where usury laws exist, the consequences
of usury are not serious. In South Carolina, the legal rate of
interest is seven per cent, but the parties may contract for any rate
without limit. In Georgia, the legal rate of interest is fixed at
seven per cent, and no more can be collected, if agreed to be paid.
In Florida, the rate of interest, in the absence of any contract on
the subject, is may agree upon any
eight per cent, but the parties
rate of interest,and the contract can be enforced. In Mississippi,
the rate of interest on debts, is six per cent, and on lent money
eight per cent but it is competent for the parties to stipulate in
;
writing for a higher rate, not exceeding ten per cent, and, if usu-
rious interest be reserved, the excess over the legal rate is forfeited.
In Tennessee, the legal rate of interest is six per cent, unless the
parties stipulate for a higher rate, which it is competent for them
to do, but not to exceed ten per cent if more be reserved, the
;
excess is forfeited.In Arkansas, in the absence of any agreement

on the subject, the rate of interest is six per cent, and it is forbid-
den by the State Constitution that any law shall be passed to limit
the rate of interest at which the parties shall agree ; that is to say,
the parties may agree upon any rate to be paid. In Texas, the
State Constitution on the subject of interest is similar to that of
Arkansas but the legal rate of interest, in the absence of agree-
;
ment, is fixed at eight per cent. In California, the legal rate of

interest is fixed at ten per cent, but it is competent for the parties
to agree in writing for the payment of any rate. In l^fevada, the

law upon the subject of same as in California. In
interest is the
Indiana, the legal rate of interest is fixed at six per cent, unless
the parties stipulate in writing for a different rate, which they are
at.hberty to do, but not exceeding ten per cent ; if above the rate
of ten per cent be agreed upon, the excess cannot be collected.
In Kentucky, the legal rate of interest is six per cent, and
a con-
tract to pay more is simply void as to the excess.
In Minnesota,
in the absence of agreement, the statute rate of interest is seven
STATUTES BESFBCTIN& INTEREST. _
77
per cent ; but it is competent for the parties to agree in writing for
a higher rate, not exceeding twelve per cent ; nothing above that
rate can be enforced.
This statement would not be co;np]ete without a reference to
the federal statute in respect to the rate of interest to be taken by
the national banks organized under that act. The statute pro-
vides that every such banking association may take, receive,
reserve and charge on any loan or discount such interest as is allowed

by the laws of the State or Territory where the bank is located, and
no more except that where by the laws of any gtate a diiFerent
;
rate is limited for banks of issue organized under State laws, the
rate so limited shall be allowed for associations organized in any
such State under the said federal act. And when no rate is fixed by
the laws of the State or Territory, the bank may take, receive,
reserve or charge a rate not exceeding seven per centum, and such
interest may be taken in advance, reckoning the days for which the
note, bill or other evidence of debt has to run. And the knowingly
taking, receiving, reserving or charging a rate of interest greater
than aforesaid is to be held and adjudged a forfeiture of the entire
interest which the note, bill or other evidence- of debt carries with
it, or which has been agreed to be paid thereon. And in case a
greater rate of interest has been paid, the person or persons, paying
the same, or their legal representatives, may recover back, in an
action of debt, twice the amount of the interest thus paid from the
association taking or receiving the same, provided that the action
therefor is commenced within two years from the time the usuri-
ous transaction occurred. But the purchase, discount or sale of a
hona fide bill of exchange, payable at another place than the place
of such purchase, discount or sale, at not more than the current
rate of exchange for sight drafts, iu addition to the interest,
is not to be considered as taking or receiving a greater rate of
interest (
Vide 2 Bright. Dig. U. S. Laws, p. 64, § 30).
And now, to repeat for convenience the rates of interest in the
several States considered in this chapter : The rate in Maryland,
Virginia, "West Virginia, North Carolina, Mississippi, Tennessee,
Arkansas, Missouri, Iowa, Indiana and Kentucky is six
Illinois,
per cent; in South Carolina, Greorgia, Kansas and Minnesota,

seven per cent ; in Louisiana, five per cent ; in Florida, Alabama
and Texas, eight per cent and in ; California, Oregon, Nevada and
Nebraska, ten per cent. In one respect, all the statutes upon
:
78 ,
Ii'AW OF USURY.
usury are in substantially the same language. They are negative,

prohibiting any interest being taken above a certain rate ; they are
none of them affirmative they do not declare in what cases inte-
;
rest shall be taken much less do they in any case require it to be

;
paid. So that it may be affirmed that neither by common law nor

by statute is a party in any case required to pay interest. And it
follows inevitably and irresistibly, upon the universal principle of
all law, that a man cannot bemade legally liable to pay interest,
as such, without his own agreement to that effect. All that the
statutes do is to prescribe the rate of interest and provide the con-
sequences for undertaking to obtain more than the legal rate.
The provisions of the statutes relating to usury in tîe different
States having thus, been detailed,and varient as they are in many

essential particulars, it becomes an important inquiry as to the
true interpretation to be given to those several acts, and the
cases which may be considered within the pale of such acts, as
well as those transactions which the courts have decided not to be
tainted with the vice of usury.
CHAPTEE VII.
OF THE PAUTICTrLAB STATUTES TO BE APtLIED EST CASES OF ALLEGED
U8TJET CONFLICT OF LAWS ON THE SUBJECT EULES BY WHICH
THE QUESTION IS DETEEMINED.
Befoee entering upon the general discussion of the interpreta-

tion to be given to the statutes of the different States against
usury, and the principles which apply to cases of usury under those
statutes, it becomes necessary to examine an important question
Which we meet at the very threshold of the discussion, viz.
which of the State laws are to govern in these cases of usury ;
that is, when

the alleged usurious transaction was entered into in
one State and the same is to be performed in another, under the
statute of which State is the case to be determined ? In order to
obtain a correct understanding of the question, it is necessary to
refer briefly to the law of nations, and more particularly to that
branch of international jurisprudence relating to the conflict of
laws in matters of contract.
;
CONFLICT OF LAWS BESPECTINa USURY. 79

Now, the law of nations is the science which teaches the rights
subsisting between nations or States and the obhgations corre- •
spondent to those rights and it has been said that, in cases of

;
doubt arising upon what is the law of nations, it is now an admitr

ted rule amojigst all European nations that our common religion,
Chrisbicmity, pointijg out the principles of natural justioe, should
be equally appealed to and observed by us as an unfailing rule
of construction. A nation or a State is a body politic, or a society
of men bound together for the purpose of promoting their mutual
safety and advantage by their combined strength. Every nation
that governs itself, under what form soever, without dependence
on any foreign power, is a sovereign State, and its rights are vir-
tually the same any other State. To give a nation
as those of
a right to make an immediate figure in this grand society, it is

suflSeient that it be really sovereign and independent that is, that ;
it govern itself by its own authority and laws. Every sovereign

State owes certain obligations to itself, and at the same time it is
under certain well-defined obligations to sustain nations and States
and among others, it is the duty of every State to recognize the
laws of a sister State, and, under certain general principles, to
give them force and effect.
It may be laid down as a general rule, that the validity of a

contract is to be decided by the law of the State where it was
made, unless by its terms it is to be performed in another State, in
which case the law of the State in which it is to be performed is
togovern ; that is to say, when the contract is, either expressly or
tacitly, to be performed in any other State than the one where it
was entered into, the general rule is in conformity to the pre-

sumed intention of the parties, that the contract, as to its validity,
nature, obligationand interpretation, is to be governed by the
law of the place of performance {Story^s Qonflict of Laws, § 280).
This rule has been fully recognized by the Supreme Court of the
United States, and, indeed, in some cases where the question of
usury was involved. The general
Said Chief Justice Taney :
"
made in one place, to be executed in
principle in relation to contracts
another, is well settled. They are to be governed by the law of
the place of performance" {Andrews v. Pond, IB Peters' S.,
65, 78). And in another very important case he said: "It is
needless to enumerate here the instances in which, by the general

practice of civihzed countries, the laws of the one, will, by the
.
80 i^"^ 0^ trsusr.
comity of nations, be recognized and executed in another, where

the rights of individuals are concerned. The cases of contracts
made in a foreign country are famUiar examples ; and courts of
justice have always expounded and executed them according to
the law of the place in which they were made provided that ;
that law was not repugnant to the law or policy of their own
country. The comity thus extended to other nations is no impeach-
ment of sovereignty. It is the voluntary act of the nation by
which it is offered ; and is inadmissible when contrary to its policy
or prejudicial to its interests. But it contributes so largely to
promote justice between individuals, and to produce a friendly
intercourse between the sovereignties to which they belong, that
courts of justice have continually acted upon it, as a part of the
voluntary law of nations" {Bemk of Augusta v. Earle, 13
Pdi&ri B., 519, 589). This language applies more particularly to
foreign naidons, but the chief justice furthermore declares that
these same rules of comity apply to the States of the Union as
well, saying :
" The intimate union of these States, as members
of the same great political family, the deep and vital interest
which binds them so closely together, should lead us, in the absence
of proof to the contrary, to presume a greater degree of comity
and friendship and kindness towards one another than we should
be authorized to presume between foreign nations." The rule
laid down in this case applies only where the performance of the
contract is to be the place where it was made. In such cases the
contract will be enforced in conformity to the law of the State in
which it was made, whether the action is brought to enforce it in
that State or in another and some jurists have maintained that
;
the same rule would apply, although the contract is to be per-

formed in another State. But Lord Mansfield stated the doctrine
to the contrary many years ago " The law of the place can never
:
be the rule, where the transaction is entered into with an express

view to the law of another country as the rule by which it is to
be governed" {BoUnson v. Blwnd, 2 Burr. B., 1077, 1078).
This is the general rule, and it has been uniformly adopted in
this country and in England. The doctrine of the lex loci con-
tractus is succinctly and accurately given by the late Judge Oowen
in a note to one of the cases reported by him. He says " The :
general proposition upon this head will be found in almost all the
cases from which I shall extract the point decided; but it is more
; .
CONFLICT OF LAWS BESPJEOTINB USURY. 81
generally laid down and supported as follows : That the law of a

place wheie a contract is made, or to be performed, is to govern as
to the natv/re, vaUdity, construcUon and effect of such contract

that being valid in such place, it is to be considered equally valid,
and to be enforced, everywhere, with the exception of cases in
which the contract iS immoral or unjust, or in which the enforcing
it in a State would be injurious to the rights, the interest or con-
venience of such State or its citizens and, on the contrary, if a

;
contract be void, or- be discharged by the law of the place where

it is made en to be performed, it is to be considered as void or dis-
charged everywhere, and to be enforced nowhere. * * * But

as the laws of contracts, etc., in foreign States or countries are
not admitted ex propria vigore,' hnt only eos comitate, the judicial
power will exercise a discretion with respect to the laws they may
be called upon to sanction ; for if they be manifestly unjust, or
own citizens, they ought to be rejected.
calculated to injure their
* * *
Accordingly an exception is, where it would be dan-
gerous, or inconvenient, or of immoral tendency to enforce the
foreign contract here " {Andr&ws v. Serriot, 4 Cow. R., 508,
511, 512, note).
In some cases, importance seems to be attached to the circum-
stance that one or both of the parties were inhabitants of the
State or country where the contract was made. But there is,
probably, no force to the distinction attempted to be made. The
rule upon the subject is, that the law of the place where the con-
tract is made is to control it, unless it appear upon the face of the
contract that it was to be performed at some other place, or was
made with reference to the laws of some other place ; and the
reason of the rule is, not the allegiance due from the contracting
parties- to the government where the contract is made or is to be
executed, but the supposed reference which every contract has
to the laws of the State or country where it is made or to be exe-
cuted, whether the parties are citizens of that State or country
or not. But the lex loci applies only to the validity or interpreta-
tion of contracts, and not to the time, mode or extent of the
remedy. And yet the rule is well settled that, when a contract is
made with reference to another country in which it is to be exe-

cuted, it must be governed by the laws of the place where it is to
have its effect. But the lex loci is to govern, unless the parties
bad in view a different place, iy the terms of the contract. To
U
:
82 i^W' OF USURT.
repeat, then : the general rule established, ex comitate et jwe

gentmm, is, that the place where the contract is made, and not
where the action is brought, is to be considered in expounding
and enforcing the contract, unless the parties have a view to its
being executed elsewhere, in which case it is to be considered
according to the laws of the place where the contract is to be
executed ( FtcZe Lee v. SeUeck, 33 iV. Y. R., 615). This is the
doctrine of the authorities, as well as the elementary. writers ; and
it would seem as a general proposition that, from the rule, there
would be no difficulty in ordinary cases of alleged usury to deter-
mine the statutes under which they are to be decided. But the
authorities are numerous in respect to the precise question of
intent and the doctrine is, that it is to be governed by the leso
;
loei, in conformity to the general rule. Said Chief Justice Taney

" The general principle in relation to contracts ma,de in one place,
to be executed in another, is well settled. They are to be gov-
erned by the law of the place of performance, and if the interest
allowed by the laws of the place of performance is higher than
that permitted at the place of the contract, the parties may stipu-
late for the higher interest without incurring the penalties of
usury." And from the whole case the learned reporter extracts
the further doctrine :
" When a contract has been made without
reference to the laws of the State where it was made, or to the
laws of the place of performance, and a rate of interest was
reserved forbidden by the laws of the place where the contract
was made, which was concealed under the name of exchange, in
order to evade the law of usury, the question is not which law is
to govern in executing the contract ; unquestionably it must be
the law of the State where the agreement was entered into, and
the instrument taken to insure its performance. contract of A
thiskind cannot stand on the same principles with a iona fide
agreement, made in one State, to be executed in another. In the
last mentioned cases, the agreements were permitted by the lex
loci contractus, and will even be enforced there if the party is
found within its jurisdiction. But the same rule cannot be applied
to contracts forbidden by its laws, and designed to evade them.
In such cases the legal consequences of such an agreement
must be decided by .the law of the place where the contract was
made. If void there, it is void everywhere" {Andrews v. Pond,
13 Peters' E„ 65, 77, 78). In aij earlier case, the Supreme Court
CONFLICT OF LAWS SESPECTING VSTJTBT. 83
of the United States held that when a bill was drawn in Georgia
on merchants in South Carolina, thelSnterest chargeable on the bill,

in an action against the drawer for an alleged liability as acceptor,
should be at the rate of interest allowed by the laws of South
Carolina, and not the interest of Georgia ; Mr. Justice Thompson
saying : " The contract of the defendants, if any were made, upon
which they are responsible, was made in Sonth Carolina. The
bills were to be paid there and, although they were drawn in
;
Georgia, they were drawn, so far as respects the defendants, with

a view to the State of South Carolina for the execution of the con-
tract " {Boyer v. Edwards, 4 Peters' B., Ill, 123).
These rules are subject to the qualification that the parties act
in good faith, and that the form of the transaction is not adopted
to disguise its real character. If a note, for instance, is made
payable at a place foreign to the residence of either of the parties
and to the subject-matter of the contract, for the purpose of

obtaining a higher rate of interest than the laws of the place of
contract allow, with intent to evade said law, the contract will be
usurious if the rate of interest specified exceed the rate allowed
by the lex loci contractus ; and perhaps it might be added that
when a contract is made payable at a place other than the resi-
dence of either of the parties, and foreign to the subject-matter
of the contract, and a higher rate of interest is stipulated for than
the laws of the place of contract permit, the parties will be
presumed to have intended a fraudulent evasion of those laws.
Such, probably, would be considered the rule (
Yide Miller v.
'
Tiffany, 1 Wall. R., 298).

Judge Story says " The general rule
: is, that interest is to be
paid on contracts according to the law of the place where they
are to be performed in all eases where interest is expressly or
impliedly to be paid. * * * Thns, a note made in Canada,
where interest is six per cent, payable with interest in
England,
where it is per cent, bears English interest only. Loans
five
made in a place bear the interest of that place, unless they are
payable elsewhere, And if payable in a foreign coxmtry, they
may bear any rate of interest not exceeding that which is lawful
by !the laws of that country. And, on this account, a contract for
a loan made, and payable in a foreign country, may stipulate for
interest higher than that allowed at home. If the contract
for interest be illegal there, it will be everywhere; bat if it be
84 L^W OF nSVRT.
legal where it is made, it will be of universal obligation, even in

places where a lower interest Us, prescribed by law. The question,
therefore, whether a contract is usurious or not, depends not upon
the rate of the interest allowed, but upon the validity of that
interest in the country where the contract is made and is to be
executed " {Story^s Con. Zoms, §§ 291, 292). The learned com-
mentator has fortified these several propositions by a reference to
numerous judicial authorities, among which is one wherein the
court said :
" With respect to the question of usury, in order to
hold the contract to be usurious, it must appear that the contract
was made and that the consideration for it was to be paid

here,
here. It should appear, at least, that the payment was not to be
made abroad for if it was to be made abroad it would not be
;
usurious " {Thomson v. Powles, 2 Simons' E., 194).

According to this doctrine, as enunciated by Judge Story, where
a contract is entered into in one State for the payment of money
in another, with interest specified according to the rate allowed
in the State where the contract is made, but higher than that in
the State where the debt is to be paid, the transaction would be

usurious. And the learned commentator says " John Yost, in :
his Commentaries on the Pandects, holds this very doctrine, which

appears to me to be entirely in harmony with the received princi-
ples of international law. He considers that interest must be
according to the law of the place where the contract is to be per-
formed, whether that place be where the contract is made, or it
be another place. If the interest is in either case stipulated for

beyond that rate, he deems it usurious. * * '
* Bur-
gundus adopts the same doctrine. * * * In cases of
express contract for interest, foreign jurists generally hold the
same doctrine " {Story's Con. Laws, §§ 293 d, 293 e, 294). But
this doctrine has not always been adopted to the furthest extent,
and especially by the courts of the State of ISTew York. It has
been held by the late Court of Chancery and by the Supreme Court
of New York, in so many words, that, upon a contract for a loan
of money made in one country and payable in another, the parties
may stipulate for the payment of interest according to the laws
of the place where the contract is made. Accordingly, promis-
sory notes made and dated in Minnesota, for money there loaned
and advanced, payable at a bank in the State of New York with
interest at twenty-six and one-half per cent per annum, and
;
CONFLICT OF LAWS BESPECTING USUBT. 85
Becured by mortgage on land in Minnesota, were held Ly the

Supreme Court of New York and the court therefore
to be valid,
reftised to direct them to be surrendered and canceled {BaVme
V. Womboiigh, 38 Ba/rb. R., 352). The notes would have been
usurious had they been judged by the laws of the State of New
York; but not so by the laws of Minnesota, because by the laws
of the latter State any rate of interest is allowed which may be
agreed on by the parties and it should be added that the court
;
found in the case that the lender of the money, who resided in the
State of New York at the time of the loan, had no intention to
violate the laws of New York in making the loan. This was
regarded as an important circumstance in the case, for, had it
been otherwise, the laws of New York

might have been applied
to the transaction, and the notes held usurious and void ( Vide
Pratt V. Adams, 1 JPmge's JR., 615). But in a much earlier casa
before the court, it was held, when a note was made and indorsed
in the city of New York for the benefit of the maker, and
delivered to a resident of Connecticut to. take to the latter State
to get discounted, on behalf of said maker, and which was
accordingly taken to Connecticut and discounted at a usurious
rate of interest by the laws of New York, that the transaction
was not usurious. The note was treated as a foreign contract
that is, a contract entered into in the State of Connecticut and ;
it was, therefore, held that the burden of proof was upon the
party pleading usury to show that the transaction was contrary

to the laws of Connecticut that' not being shown, the transaction
;
was upheld {City 8amm,gis Bank v. Bidmdl, 29 B&rb. S., 325).

This was equivalent to holding what the reporter extracted as the
doctrine of the case, viz., that where a loan was made in the State
of Connecticut at a greater rate of interest than was allowed by
the laws of New York, but no greater than the legal rate in Con-
necticut, the fact that the note given by the borrower for the
amount of the loan was made payable in New York, did not ren-
der the transaction usurious and the note invalid. But it will be
observed, also, that another important principle is laid down in
this case, which is, apparently, against the general rule in such
cases, viz., that, in the absence of all proof, the court will presume
the rate of interest reserved to be in accordance with the laws
of the State where the contract was made ; whereas,, the general
xale is, that, in the absence of proof to the contrary, the court
86 i-4fr OF VSUBT.
will presume that the laws of a foreign State are precisely like
the laws of the State in which the court is held. That is to say,
the laws of a country to whose courts a party appeals for redress
furnish, in all cases, prima facie, the rule of decision and if •
either party wishes the benefit of a different rule or law, as, for
instance, lex domdciUi, lex looi cont/racinis, or lex loci rei sites, he
must aver and prove it ( Vide Monroe v. Douglass, 5 JV. T. R.,
447; McGraney v. Alien, 46 Sa/rl. R., 272). It is the rule, for
the very good reason that the courts of a country are presumed
to be acquainted only with their own laws ; those of other coun-
tries are to be averred and proved, like other facts of which courts
do not take judicial notice. But in the case of the Ci^j Sowings
Rank V. Ridwell (29 Rarb. R., 325) it was observed that there is
a general principle of law that courts will not presume the com-
mission of crime or the existence of a state of facts which would
operate as a forfeiture of property or rights ; and it was declared
that this presumption is not confined to proceedings instituted
with a view of punishing the supposed offense, but holds in all
civil .suits where it comes collaterally in question. And because
the eourtj by presuming the usury laws of Connecticut to be the
same as those of New York, the lender of the money would
necessarily be presumed to be guilty of a misdemeanor, the case
was held to be an exception to the ordinary rule.
So, it may be quite safely affirmed that where no place of per-
formance is expressly stated or implied from the terms of the
contract, the was made will govern in
law of the place where it
respect to its construction and validity. If a contract is, by its

terms, to be performed partly in one country and partly in
another, each portion is to be interpreted according to the laws
of the country where it is to be performed. "Where a contract
for the payment of money is made in one State and payment in
another, and no interest is expressed in the contract, the interest
is to be governed by the law of the place where it is payable and, ;
in such case, if the rate of interest is expressed, and the same is

not greater than is allowed by the laws of each State, the trans-
action will be upheld that is to say, if the rate of interest be
;
higher at the place of the contract than at the place of perform-

ance, the parties may lawfully contract in that case also for the
higher rate. And a party alleging that an agreement is invalid
under the usury laws of another State, must show what are the
CONFLICT OF LAWS SFSPFCTINa U8UBT. 87
laws of that State in relation to usury, or the presumption will be

indulged that the agreement is valid under those laws. It should
be stated here that, notwithstanding the decision of the City
Savings Bank v. Bidwell (29 Barb. B., 325), the Court of Appeals
of the State of New York
have held that when a promissory
note, made and dated in that State and payable at a' bank there,
is negotiable in another State, the laws of New Tork are to con-
trol as to the defense of usury ; and if the note is discounted at a

rate of interest exceeding seven per cent, no action can be sus-
tained upon it in New York {Jewell v. Wright, 30 N. T. B.,

259). So far as seems to have been considered, the facts of the
case in Barbour and the 30th New York are quite similar, although
the decisions are directly at variance. In the case of Bidwell, the
note was drawn, signed, indorsed, delivered and made payable in
New York, with the understanding, however, that it was to be
discounted in the State of Connecticut. In the case of "Wright,
the note was drawn, signed, indorsed, delivered and made payable
in the State of New York, without any proof as to where it was
to be discounted. The notes in both cases were made • to raise
money on,and the indorsers of both notes resided in the State of
New York, although the note in the case of Bidwell was deliv-
ered to a resident of Connecticut, to take to the latter State and
get discounted. In the prevailing opinion in the case in the 30th
New York it is observed :
" The main question in the case is,
whether the laws of New York or Connecticut are to control as

to the defense of usury. The note was negotiated in Hartford,
but was payable at Loekport, in New York. Nor can it be
claimed that a contract is to be governed by the laws of the place
where' it is made, if it is not to be performed acbording to the
terms of the contract elsewhere. * * * But if such note or
contract is, by its terms, to be performed in another State, then
the laws of that State must govern. * * * The fact that the
note was dated in New York is alone presumptive evidence that
the maker not only resided at the place of its date, but contem-
plated payment there. For the purpose of charging the indorsers,
the makers (indorsers ?) must have been sought at their residences
or places of business in this State. The same is stated in Curtis
V. Leavitt (15 W. Y. B., 9, 227), where it is said It is a gene- :
'
ral rule that the place, where contracts purely personal are
made must govern as to their construction and validity, unless
88 J^-^W OF USURY.
they are to be perfonned in another State or country, in which

case their construction and validity depend upon the law of the
place of performance.' * * * And in Cutler v. Wright (22
W. Y. R., 472) it was held that a note made in New York, but
dated in Florida and payable there, was governed by the laws of
that place ; and it is said the authorities did not leave this ques-
tion in doubt. The same was also held in Porei&foy v. Ainsworth
(22 Bml). R., 127). These cases from our own courts render it
unnecessary to examine any other class of decisions upon this
point." It would seem that this case in the 30th New York sub-
stantially overrules the case in the 29th Barbour at all events, it
;
would hardly be safe to rely upon the law as expounded in the

latter ease.
Where a contract was made in the State of Georgia, between
parties subject to the laws of that State, in pursuance of which
one of them drew a bill of exchange in favor of the other, upon
a person residing in the State of New York, the Supreme Court
of the latter State held that the parties must be considered as
contracting according to the laws of the former State, and the
transaction was to be determined under those laws. Ingraham,
P. J., who delivered the opinion of the court, said: "The con-
tract was made in Georgia, the money paid there, and the drawer
as well as the bank were, at the time of the contract, both subject
to the laws of Georgia. The mere fact that the funds upon which
the draft was drawn were in the hands of a third person, in New
York, was no part of the contract so as to affect its validity.
The drawer owed the plaintiff some money, and gave the draft
in Savannah. The whole transaction took place there, and was
performed there, so far as the drawer had anything to do with it.
In Cribb V. Tremont (20 Law cmd Eq. JR., 555) it was held that
on such a bill of exchange, if not paid, the law of the place where
made, and hot of the place where payable, was to govern as to
the rule of damages, and the drawer was liable for interest accord-
ing to the laws of the country where the bill was drawn. * * *
The contract between the parties was made under the laws of
another State, and we must consider the parties as contracting
according to the laws of that place " {Bank of the State of
Georgia 45 Ba/ri. R., 340, 342, 343).
v. ZeiOin,
It should be added that when a loan of money is made in one
State, and is to be repaid in the same State, the fact that the loan
;
CONFLICT OF LAWS RESPECTIN& USUBT. 89

is to be secured by a mortgage on lands in another State will not
change the rule in respect to the laws of the place which are to
govern the transaction. In such case, the statutes of usury of the
State where the contract was made, and not those of the State
where it is secured by mortgage, are to govern it, unless there be
some other circumstance to show that the parties had in view the
laws of the latter State. This question has been set at rest by
repeated decisions, one of which was at an early day by the
Supreme Sourt of the United States. The court observed " The :
point is established that the mere taking of foreign security does

not alter the locality of the contract with regard to the legal
interest. Taking foreign security does not necessarily draw after
it the consequence that the contract is to be fulfilled where the
security is taken. The legal fulfillment of a contract or loan on

the part of the borrower is repayment of the money, and the
security given is but the means of securing what he has contracted
for, which, in the eye of the law, is, to pay where he borrows,
unless another place of payment be expressly designated by the

contract " {De Wolf v. Johnson, 10 Wheatonh E., 367). The
matter of security for the loan has, of itself, nothing to do with
the question of the laws by which the validity of the transaction
is to be determined ;as to that, it is wholly immaterial.
It has been recently held by the Supreme Court of theState of

New York that an agreement for the loan of money, made and
consummated in New York by residents thereof, by which the
borrower is to give a bond accompanied by a mortgage upon lands
in Wisconsin, no place of payment being specified, is governed by
the usury laws of New York, and not by those of Wisconsin.
Mason, J., who delivered the opinion of the court, said : " The
question presented for our decision is, whether this is a contract
to be governed by the laws of the State of New York or those of
Wisconsin, and I entertain no doubt but that it must be regarded
as a New York contract, where the lex loci oonbracifws controls.
Every concomitant to make it a New York contract seems to exist
in the case. The parties reside here the loan was made here
;
the securities were executed here the money is certainly payable

;
here, where the parties reside. Upon such a state of facts I am

unable to discover any principle of law upon which this can be
pronounced a Wisconsin cpntract and no adjudged case has been
;
referred to upon the argument, nor have I been able to find any
12
90 i-^W" (f^ USURY.
which holds it such " {Gope

Alden, 53 Ba/rb. B., 350-352).
v.
This is in accordance with the doctrine laid down in the same case,
when it was before the court for review upon a previous hearing
{MoCrcmey v. Alden, 46 Ba/rl. E., 272). And a case decided by
the Supreme Court of Wisconsin is directly in point upon the same
question. The suit was brought to foreclose a mortgage in Wis-
consin. The parties both resided in New York, where the loan
was made, and the bond and mortgage were executed on lands in
Wisconsin. Dixon, Ch. J., in giving the opinion of the court,
said "We have no doubt that this contract is to be governed by
:
the laws of New York. * * * In this case, the parties all

resided in New York the loan was made there was to be repaid
; ;
there and the laws of that State must govern the contract as to its
;
validity and effect " {NewmoMN. Kerson, 10 Wis. E., 333, 840, 344).
The distinction made by the authorities as to the parts of a con-
tract which are to be governed by the laws of the place in which
it is entered into, and those which are to be governed by the laws
of the place in which the payment was intended, is so well marked

that any further discussion of the subject might be considered
unnecessary and superfluous. Much might be said in respect to
the law of domicile, and the laws which relate to the capacity, state
and condition of persons contracting, all of which have more or
less to do with questions of usury, and the statute under which
the matter is to be determined. But the method adopted in this

chapter for presenting the real question to be discussed, and the
full statement of the general principles applicable to cases of
alleged" usury in which a conflict of laws may arise, render any
particular reference to thoê incidental matters undesirable arid
unimportant. Other matters relating to this question may be
directly or indirectly touched upon in the further treatment of the
main subject of usury, and in the examination of the eases which
are, or are not, within the pale of the usury acts.
It may be pertinent to add, that the statutes of the several
States against usury are held to apply to loans made by banks
organized under the act of Congress passed June 3, 1864, entitled
" An act to provide a national currency secured by a pledge of
'
State bonds, and to provide for the circulation

and redemption
thereof."In regard to the express provisions of that act, the
Supreme Court of the State of New York has recently held that
the federal government has exercised its sovereign power over
CONFLICT OF LAWS BJSSPFOTING VSUST. 91
the law of these institutions; and to that extent its power

and its enactment are conclusive. The court further declared,
that although the statute has subjected national banks organ-
ized under its provisions to the judicatories of the State,
so that, as to the form of the action and the proceeding in its
coiirts, the State system of practice is and must be adopted,
the federal government not having in that particular expressly

asserted- its power; yet, in whatever court the action maybe
pending, the law prescribed in the express provisions of the act
of Congress is sovereign and exclusive. Potter, J., delivered the
opinion of the court, and, among other things, said :
" It will be
assumed be a conceded point that it was within the power of
to
Congress, under the Constitution of the United States, to enact
the law in question and it is perhaps as fully conceded that an
;
act of Congress, passed under the implied powers of the Constitu-

tion, has as much potency as one enacted under the express power
of the same instrument. It is equally within the Constitution,
and such implied powers are also as much prohibited to the States
as if they had been expressly forbidden. * * * And the
•Constitution itself declares that it, and the laws of the United
States which shall be made in pursuance thereof, shall be the
supreme law of the land ; and the judges of every State shall be
bound thereby, anything in tlie Constitution or laws of any State
to the contrary notwithstanding {Const. U. 8., Art. 6). * * *
That the national Legislature possessed the full power to legis-
lafe in regard to these national banks, and, as to them, to exercise
its jurisdiction in its enactments as to all things necessa/ry cmd
. uprvper in order to carry its powers into execution ; and to regu-
late the. exercise of such powers by such conditions, upon such
considerations and by such rules and penalties as to prevent extor-
tion, is a proposition too self-evident to require argument. In this
respect the national Legislature is unlimited " {First National Bank
of Whitehall v. Lamb, 57 JBa/rb., 429, 431, 432). This case, how-
ever, was taken to the Court of Appeals of the State, and the judg-
ment of the Supreme Court reversed the Court of Appeals holding
;
that National Banks, organized under the act of Congress of June

3, 1864, are subject to the usury laws of a State, and the question may
thus be regarded as settled {First National Bank of Whitehall v.

Lami, 6 Alb. L. J., 382).
92 ii^w OF nsanr.
CHAPTER VIII.
THE OONSTirrENTS OF USUET THEEE MUST BE A LOAIT, EXPEESS OE

IMPLIED THEEE MUST BE AIT AGEEEMENT THAT THE MONET LENT
BHALL OE MAT BE EETTJENED.
The usury laws of the different States in which such laws exist
differ in many of their provisions, but what is usury in one State
is usury in another, and there are certain principles which may be
gathered from the adjudications, which may be regarded as prev-
alent, if not universal. To constitute usury, it is requisite in the
jBrst place that there be a loan of money, express or implied, for
which a day of payment is given. It is not imperative that the
contract be in the form of a loan, but it must be a loan in fact,
and whether it be so or not is a question for the jury. The law

looks to the substance and the effect of the transaction, and if the
same be in truth and in fact a loan, it is sufficient, in whatever
form the transaction may be placed. But there can be no usury
where there is no debt contracted upon the loan of money. The
rule is simple and decided, that the transaction must be one
involving the loan or forbearance of money. A person may sell
his credit, his responsibility, his goods or his lands and if he ;
deals fairly, he may take as large a price for either as he can get,
and there can be no usury in the case. The authorities are clear
and explicit that to constitute usury there must be a loan, directly
or indirectly, and that a real sale, without any intent to loan,
though it may be oppressive, cannot be usurious. The inquiry
often arises, whether the transaction was a real sale in the regular
course of business, or a colorable sale, with intent to disguise a
loan,and evade the statute against usury but if the case is proved
;
to be that of a sale, and not a loan, the courts uniformly hold that
usury cannot attach, and, indeed, a sale can in no case he primu facie
evidence of usury for it is valid unless it be a loan in disguise, and
;
the burden of proof lies on the party claiming it to be usury, and it is

necessary for him to show the circumstances which bring it within
the statute. A promissory note, valid in its inception, may be sold
at a greater discount than the legal interest, without being usurious.
In the case of a note given to raise money, the rule would be dif-
ferent. Such a transaction would be regarded a loan, and if the
note was sold at a discount exceeding the lawful interest, it would
:
O0N8TITVENTS OF USVRT. 93
be jprvma fade usury. But in. no case, where the transaction
assumes upon the face of it the appearance of a purchase and sale,
will the court, as matter of law, pronounce the contract usurious,
for the reason that there is ^rvma faoie no loan. "Whenever,
therefore, a contract, upon the face of it, is a mere sale, and this
is claimed to be usurious, the only question which can be made is,
whether was ionafide a sale, and if found to be such, it cannot

it
be usurious, however wrongful the terms of the contract may be.

A large number of authorities might be cited to sustain this posi-
tion, but a few only need be referred to. In an early case in
the State of South Carolina, which was an action by an indorsee
against an indorser, on a note made for the accommodaUon of the
maker, and sold at a. discount beyond legal interest, the court held
the note void ; but Justice Colcock, in giving the opinion of the
court, says " When a note made ionafide for a valuable considera-
:
tion is brought into market, it may, like any other property, be

sold for less than its value. It is, then, always a question of fact
whether the note
for the jury, is one of that character, or made to
evade the statute " {^Fleming v. MvlUgan, 2 MoCord H., 173).
In a later case in the same State, it was declared by the court
" It is not usurious to sell or buy a negotiable paper founded on a

legal consideration for less thaadts nominal value. When a note
or a legal consideration is drawn to order and indorsed, no matter
how often it has been polluted in the hands of intermediate
holders, it is still valid in the hands of a ionafide holder. * * *
Courts of justice have universally labored to untrammel the
restraints on the circulation of negotiable paper as indispensably
necessary to the existence of commerce. They constitute, indeed,
the mainspring, the very sinews of all commercial enterprise, and
without them all its operations would be greatly impeded, if not
wholly obstructed. * * * Bonds, notes, bills of exchange,
bank notes, certificates of stock, and even specie itself, are the
common subjects of traffic, and their intrinsic value must always
depend on such a variety of circumstances that no foresight or
wisdom can regulate it. * * * To declare that the parties to
such traffic had incurred the pains of usury, would convulse the
whole commercial world to its center" {Johnson v. King, 3
McGord B., 365, 368). And in a still later case in the same State,
the court reiterate their former doctrine, that notes originally
founded on a good consideration, though afterward sold for less
.
94 I'-^W OF USURY.
than they are nominally worth, do not make a case of usury

{Rerrick 4 MoOord E., 40S). The same doctrine was
v. Jones,
declared by the Court for the Correction of Errors of the State of

New York, at an early day, and it has been adhered to ever since.
It was observed : "-To purchase a note is a perfectly legal transac-
tion ; to purchase for less than its face is forbidden by no principle
of law or morality. and transfer a
Whether there be in such a sale
violation of moral obligation, must depend upon the fact whether
one party shall or not take an undue advantage of the circum-

stances or necessities of the other. To constitute a violation of
the statute against usury, there must be a loan. * * * The
sale of a note being a legal transaction, it must be deemed valid
until it shall be proven to have been done merely as a cover to a
loan and an evasion of the statute " {Orcme v. HendrioTcs, 1 Wend.
JS., 569, 635 ; and vide Ra/palye v. Anderson, 4 HilVs E., 472).
And in the Supreme Court of the United States, in a ease in
which the question of usury was discussed at great length, it was
held that a loan, express or implied, is indispensably necessary to
constitute usury, and it was remarked: "If it were a hona fide
purchase, there an end of the question of usury " (Lloyd v.
is
Scott, 4 Peters^ U. S. E., 205). Indeed, one general principle

appears to govern all the standard cases, whether decided by the
courts of the American States or of England, which is, that a note
given for a valuable consideration, and free from usury in its
originj cannot be tainted by any subsequent transaction ; but a
note originally made for the purpose of raising money,' and which
is sold or discounted for more than the legal rate of interest, is
void. The between a note made for the sole purpose
difference
of raising money, and one given for a valuable consideration, is
very obvious. The first, in its inception, is intended as security
for a loan, and represents credit only, not property while the ;
other is given for goods, or other valuable consideration, and is

the representative of money or property, as truly as the note of a
bank is such a representative; and it might as well be called
usury to sellbank note for less than its face as to call it usury to
a
sell, on the same terms, a promissory note representing property.
So essential is this ingredient, that the Supreme Court of the State
of New York held, twenty-five years ago, that one may iona fide
sell by way of guaranty, or by making a note for
his credit,
another's accommodation, though for a compensation exceeding
;
CONSTITUENTS OF USURY. 95
the legal rate of interest, apd that there will be no usury if the
transaction be unconnected with a loan between the parties. In
giving the opinion of the court, Bronson, Ch. J., said :
" The
plaintiffs sold their warranty, or credit, to the defendants for a com-
mission of two and a half per cent on securities payable in four
months. The rate of compensation is a matter of no legal import-
ance for, if the plaintiffs had a right to charge anything, they
;
might charge whatever sum the defendants would agree to pay.

There was no negotiation nor agreement for or about a loan; nor
was any loan ever made. It was a sale of credit, and nothing
more. The defendants may have made a bad bargain but there ;
was no usury in the case " {More v. Howlcmd, 4 Denials R., 264,
268). This case has been uniformly recognized, and is regarded
as well settled law seems that the transaction must be, in
; and it
fact, exchisweh/ that of a loan, in order that it may be impeached
for usury, subject, of course, to the proviso that there is nothing

in it intended as a cover to a loan. Accordingly, it has been
recently held by the New York Court of Appeals that the lender
of money may lawfully receive from the borrower a reasonable
compensation, in excess of interest, for services and expenditures
in procuring the money to be loaned, provided the services were
performed and the expenditures incurred at the request of the
borrower, and upon his express promise to pay therefor. The
compensation thus received be distinct from that agreed
is said to
to be paid for the loan or forbearance of the money. The latter
is interest, and cannot lawfully exceed the statute rate. The for-
mer is a stipulated price for work, labor and services done and
performed, and for money paid, laid out and expended as such, ; ,
it constitutes a distinct demand, which might be recovered in a

separate action, if not included in the security taken for the prin-
cipal debt " (Thurston v. Oornelt, 38 JST. T. R., 281). And it
had been previously held by the same court that when the agree-
ment for a loan or advance of money or goods is only part of an
entire contract, embracing other matters, and more than the legal
rate is reserved, such a transaction is not necessarily usurious
that it is never, in such cases, a necessary inference that the pre-
mium was reserved solely for the forbearance and it was said ;
that theamount to be paid was of no importance, except as it may

bear upon the intent of the parties {Smith v. Ma/rvin, 27 iV. Y^
E.,1ZT). But further reference is unnecessary. The doctrine
;
96 i-^W- OF VSUST.
has long been recognized by the court^, and appears now to be the
well settled and established law of the laind, that, to constitute
usurj, it is requisite that there must be either a direct loan, or
there must be some device for the purpose of concealing or

evading the appearance of a loan, when, in truth, there was one.
The cpmponent parts of a loan are a voucher or contract, specify-
ing the nature of the transaction, the time of payment or redemp-
tion, the rate of interest for the use of the money loaned, and the
intention of one to loan and the other to borrow ; and the real
substance of the transaction, and not the color and form of it, will
always be examined for the purpose of determining whether it be
a loan, or something else.
The second requisite of a usurious transaction is, that there be

an understanding between the parties that the money lent shall or
may be returned. For example, if a party make a loan of another,
and agree to pay a specific sum, exceeding the lawful interest,
provided he do not pay the principal by a day certain, it is not
usury. By a punctual payment of the principal, he may avoid
the payment of the sum stated, which the law regards as a penalty
or, where a loan is made to be returned at a fixed day with more
than the legal rate of interest, depending upon a casualty which
hazards both prineipaland interest, the contract is not usurious;
but if the interest only is hazarded, the rule is different ; it is
then usury. In the latter case, the lender is sure to 'have the
principal again, come what will ; and this brings the case within
the rule ; but in the former, the lender may lose both principal
and interest, according to the precise terms of the agreement, and
hence the transaction cannot be usurious, if iona fide, because it
lacks the requisite that the money loaned must be absolutely

returned. Indeed, if the principal only is put in hazard by the
arrangement, that is, if by the terms of the loan a contingency
may happen on which the lender may have returned less than his
principal, there is no usury. The authorities are very numerous
and decided, both in this country and in England, holding that an
agreement, in good faith, to pay even double the amount of money
borrowed, or other penalty, on the non-payment of the principal
debt at a certain day, is not usui'ious, because it is in the power of
the borrower wholly to discharge himself, by repaying the princi-
• pal according to the bargain. This doctrine is well illustrated in
an early case in Massachusetts, where the action was assumpsit on
CONSTITUENTS OF VSUBT. 97
a promissory note, made by, the defendant, by which he promised
to pay and deliver to the plaintiff nine hundred and twenty-eight
bushels of oats by the seventh day of October next after the
date of the note. It appeared on the trial that the note was
given for a debt which the oats would pay at twenty cents a
bushel, whereas, in fact, the oats were worth at least thirty-seven
cents a bushel at the time the note was made. But it also appeared
that, at the time the note was given, the plaintiff stipulated that
if the defendant would give the note he would discount upon it
five bushels of oats for each silver dollar paid thereon, if the same
should be paid one-half in thirty days and the other half in sixty
days ; and on these terms the note was made. "Within the thirty
days the defendant paid one hundred silver dollars, pursuant to
the agreement, which the plaintiff indorsed on the note, in lieu
of five hundred bushels of oats. The balance remaining unpaid,
the action was brought. The by the terms of the
court held that,
contract, the defendant might, by making payment in thirty and
sixty days, have avoided everything but the discharge of what
was honestly due from him^ for which the note was given as secu-
rity, and that therefore the note was not usurious {Cutler v.
How, 8 Mfiss. H., ,257). In this case, however, the decision

'
might have been different had it not been for the stipulation that
the maker might discharge the note for the oats at their real value,
for the same court held at the same term, in a case in favor of the
same plaintiff, that a similar note without the stipulation was void
for usury. The case was this : The defendant owed the plaintiff a
sum of money and gave him his promissory note, payable in six
months, in a specific commodity, at a much lower rate than its
current value. The note not being paid at the time it fell due,
the plaintiff put it in suit, and afterward adjusted the suit by tak-
ing a new note for the balance of the former at the low rate of the
commodity, and made the new note also payable at a ^ven day,
in a specific commodity, at a lower rate than its current value.
The note was held to be usurious and void {Cutler v. John-
last
son, 8Mass. B., 266). According to the report of the case, tho
court held, as a question of law, that the note was usurious but ;
this is probably a mistake, for the court granted a new trial,
doubtless to have the question passed upon by a jury whether

the transaction was not really a shift to enable the plaintiff to get
more than legal interest for the forbearance of his money, and if
1?
98 J^-^W OF USURY.
it was, whatever its and form, it was usurious. But if it was

color
simply a contl-aet in goodfcdth to pay a bona fide debt in property
at a stipulated price, the transaction could not be considered usuri-
ous. In such cases, therefore, it becomes a question of fact for
all
the jury, whether it was an honest and fair contract, or intended
merely as a cloak for usury. It should be stated, however, that it

is not requisite that the principal loaned is to be returned in
money, in order to make the transaction usurious. Although the

principal and interest may
be contracted to be paid in labor or
property, still the transaction may be within the statute against
usury, provided the other necessary ingredients are found in it
(
Vide Earner v. Sarrell, 2 Stew. c& Port. R., 323 ; Richardson v.
Brown, 3 BibVs R., 207; M'Qennes v. Hart, 4 id., 327; Woodr-

ward y. Fitspai/riok, 9 Dana's R., 121 Lindsey v. Sharp, 7 ;
Monroe's R., 248 Thorp v. Rw^, 1 Dev. S Rat. Eq^. R., 613).
;
A very common case, illustrating the doctrine that in order to

constitute usury there must be an understanding between the
parties that the money be returned, is that of the sale of
lent shall
annuities for it has been determined in all the cases upon this
;
subject that a purchase of an annuity, however exorbitant the

terms may be, can never amount to usury. But, even in those
cases, if the transaction respecting the annuity be only a cover for
the advancement of money by way of loan, it will not exempt the
security taken from the taint of usury. And in respect to those
cases where the loan is attended by some contingent circumstances
which subject the money lent to evident hazard, so that the trans-
action is not within the statutes against usury, it must be remarked
that a mere nominal contingency, attended by no real hazard of the
principal of the money lent, will not divest the transaction of its
usurious character. The ordinary risk of the death or insolvency
of the borrower is not such a hazard as wiU have such efEect. But
the doctrine is well settled that, in order to constitute usury, there
must be in substance a loan or advance of money, and the borrower
must agree to return the amount advanced at all events, and inde-
pendent of contingency or hazard ( Vide DowdaU v. Lenox, 2
EdM. Ch. R., 267 ; Cotton v. Dunham, 2 Paige's Gh. R., 267). To
repeat in order to constitute usury, there must be a loan of a
:
certain kind; that is to say, there must be a loan, properly so

called a temporary letting, for profit, of the use of money or
;
goods, to be absolutely returned by the borrower to the Iwder.

;
:
CONSTITVENTS OF USVBY. 99
It is this quality of its being returnable that constitutes a loan,
and hence there can be no usury in contracts which include risks
or contingency. Such contracts may be unconscionable and
oppressive, from which relief may be had in a court of equity
but they cannot be regarded as usurious in a court of law. It is
the intention of the law, while protecting from usury, not to
endanger or impair contracts which are necessary to commercial
dealing, and common in the intercourse of men ; and the statutes
against usury are therefore never held to apply in cases where
the principal and interest are put in hazard upon a contingency,
and where there is a risk that the lender may have less than his
principal. The reason which has been assigned for this rule is
that such contingency is the main characteristic of contracts of

trade ; and, therefore, taking such advance of money out of the
form of a loan, it renders it a new contract, and much mischief
might ensue if such contracts could be shaken. But, as before
suggested, the court will always, in these cases, exercise a sound
discretion, with the assistance of a jury, to ascertain whether the
contingency be real and Ixma fide or a mere shift to elude the
statute against usury. The contingency must, in all cases, be
lawful, and it should also be fair and reasonable in order to rebut
the presumption that it is only a cover for usury. And the mere
circumstance that the contract has the form of a real contingency
will not exempt the transaction from the scrutiny of the courts,
who bound to exercise a judgnaent whether the contingency
are
be a real one or a shift and device to cover usury. The distinc-
tions in eases of contingencies have often been taken and dis-
cussed by the courts, and the authorities are uniform as to the
principles governing such cases. A
learned English judge well
illustrates the doctrine in an early.case, taking the distinction thus
" First, if I lend ilOO to have £120 at the year's end upon a casu-
alty ; if the casualty goes to the interest only, and not to the
principal, it is usury, for the party is sure to have the principal
again, come what will come. But if the interest and principal
are both hazarded, it is not then usury ; and it was, therefore,
judged in C. B. in Dartmuth's case, where one went to Ifew-
foundlcmd and another lent him £100 for a year to victual his
ship, he returned with' the ship he would have so many
and if
thousand fish and expresses at what rate, which exceeded the

;
interest which the statute allows and if he did not return, that ;
100 LAW OF aSURT.
then he ^yould lose his principal, it was adjudged to be usury.

Secondly, have both interest and principal, if it be at the
if I
will of the party who is to pay it, it is no usury as if I lend to ;
one £100 for two years, to pay for the loan thereof £30, and if
he pay the principal at the year's end he shall pay nothing for
interest, this is not usury, for the party hath his election, and
may pay it at the first year's end, and discharge himself" {Rob-
erts V.Tremange, Cro. Jac, 308). In order to constitute usury,
there must, in fact, be a loan, and the principal loaned must, by
understanding of the parties, be returned to the lender; but,
though the- form of the transaction be that of a sale, if it was not
the intention of the parties to buy and sell, but to borrow and
lend, and if the ccmtract was, in truth, for a loan of money, it will
be declared usury, though under the mask of a treaty for the sale
of goods. And, on the contrary, though the form of Ihe security
given may import a loan, it may not, in fact, prove to be so. The
substance of the transaction be principally regarded, against
is to
which expressions in the instrument, which can only with strict
propriety be applied to a loan, have but little weight. To be
sure, in all such cases, every circumstance by which a contract is
assimilated to a loan bears the aspect of corruption, and has a
tendency to reveal the mala fides of a usurious contract; but the
question whether the contract is in substance a loan, disguised in
shape to evade the law, or a iona fide contract of another species,
belongs to the decision of the jury ; and if it be found that the trans-
•
action is not that of a loan, the principal of which is to be returned,
without hazard or contingency, it cannot be usurious. The doc-
trine is unquestionable, and has been quite recently confirmed in
a well-considered case in the Supreme Court of the United States,
in which the rule, as extracted from the opinion by the reporter,
was declared, that, when the promise to pay a sum above legal
interest depends upon a contingency, and not upon any happening
of a certain event, the loan is not usurious and it was held that ;
usurious interest will not be inferred from a paper which, while

payment of a sum above legal interest, is "uncertain,
referring to
and so curious" that intentional bad device cannot be affirmed
{Spain V. Hamilton, 1 Wallace, 604). So it may be observed,
that upon consulting all the authorities upon this subject, it appears
that, when either the principal alone, or, a forUori, both principal
and interest are hazarded, there can be no usury ; but this hazard
CONSTITVENTS OF USURY. 101
must be real, and not colorable, and the rule only extends to eases
where the principal is included in the contingency for, if the ;
interest alone be hazarded, no favor is extended to the contract.

That is to say, this is the general rule but there is a single excep-
;
tion to it, viz., when the exorbitant profit or interest is reserved in

the nature of a penalty to be paid upon some default, which the
borrower may
avoid by the payment of the principal, and so defeat
the interest. Here the principal may be reserved, and the interest
alone be subject to be defeated by the contingency, and still the
transaction may be exempt from the operation of the statute against
usury.
The principle of hazard, which exempts a contract from the
charge of usury, is well illustrated in the case of those contracts
which are denominated post obits, by which a borrower, in con-
sideration of a sum of money paid mstanter, agrees to give the

lender a larger sum upon the death of some particular person or
persons. So, also, the principle is illustrated in the case of tana
fide annuities for life, or lives ; but these matters will be fully
discussed in future chaptfos, and, so far as the objects of this chap-
ter are concerned, perhaps enough has already been said.
CHAPTER IX.
ILLEGAI. INTEEBST MUST BE EESEEVED OE

CONSTITTTENTS OF TTSTJET
—
TAKEN THERE MUST BE A COEEUPT AGEBEMENT TO TAKE MOEE
THAN THE LEGAL BATE.
To constitute a usurious transaction, it is requisite not only that

there be a loan, either express or implied, and an understanding
between the parties that the money lent shall or may be returned,
but, in the third place, a greater rate of interest than is allowed by
law must be paid, or agreed to be paid, as the case may be. When
the security given for the money loaned expresses upon its face an
illegal rate of interest, there can be no difficulty in determining
the character of the transaction ; it must be regarded as usurious.

But, in most cases, when usury is alleged, only legal interest is
nominally reserved, so that an inquiry into the substance of the
transaction must be made. The rule, however, is obvious, that, in
102 I'-^W OF USUBT.
order that there be usury in a transaction, more than legal interest

must be paid or reserved. It need not be in Hheform of interest,
necessarily ; it may
be included in the principal received, or be
paid as a distinct honus ; but it must be, in effect, the payment or
reserving of a greater rate of interest than, the law allows for the
use or forbearance of money, or the transaction cannot be brought
within the pale of the usury laws. An illegal rate of interest may
be taken or reserved in various ways, when, upon the face of the
transaction, everything appears fair and in accordance with the law.
Illegal interest may be reserved when the legal rate is to be taken
before the end of the term for which the money is lent ; for it is
clear, that, if the lender of a sum of money, payable with interest

for forbearance during a certain term, receive all or any part of the
interest during that term, he will thereby have taken interest
above the statutable rate. Again, illegal interest may be reserved
in some cases, when goods are advanced instead of money. For
example, when a man sells to a person, in want of money, an article
of personal property at a price beyond its real value, which the
individual purchases, not because he desires the article for his own
use, but really to enable him, by selling the same for what it will
fetch, immediately to relieve his necessities. Now, the contract
under which such a sale is made, or the instrument taken to secure
the purchase-money of the thing sold, may be just as obnoxious to
the charge of illegal interest as though the vendor had, instead,
actually lent the Tendee a sum of money just equal to the true
value of the article sold, and taken his note for the amount at
which it was sold by him. In the case supposed, the real object
which the person had in taking the article of property was the
immediate means of supplying his wants and the purchase was,
;
therefore, merely colorable. So, also, illegal interest may be

reserved in cases of transfers of stock, and indeed the temporary
transfer of stock in the public or other funds is an engine of usury
which is often resorted to. The loan or transfer of stock,
if hona
fide, is not usurious; and when stock is lent, and the dividends in
the meantime are paid over to the lender, even though they exceed
may not render the transaction usurious.
the legal rates of interest,
And perhaps usury can only attach to such a proceeding where the
party transferring receives, or is likely to receive, more than the
legal rates,and cannot by possibility receive less. It is never
important to inquire as to the shape in which the profit upon
CONSTITUENTS OF USUBT. 103
money lent is to accrue ; it is sufficient that such profit exceed the

legal rate, in order to bring the transaction within the statute
against usury. And yet it may be unqualifiedly affirmed that a
vital element in every case of usury is, that a greater rate of inte-
rest than is allowed by law has been paid or reserved, and that
without no usury can exist.
this constituent
and in the fourth place, in order to constitute usury,
Finally,
there must be a corrupt intent to take more than the legal rate for
the use of the money loaned. This is a very important ingredient
to constitute the offense, and there can be no usury in any transac-
tion in which the parties did not intend to do the thing forbidden
by the law. The act of usury has long since lost that deep moral
stain which was formerly attached to it and it is now generally
;
considered only as an' illegal or immoral act, because it is pro-

hibited by law. Ignorance of the law will not protect a party
from the penalties of usury when it is committed but where there ;
was no intention to eva,de the law, and the facts which amount' to
usury, whether they appear upon the face of the contract or by
other proof, can be shown to be the result of mistake or accident,
no penalty attadies, and there is -in fact no usury. The agree-
ment under which the illegal rate of interest is reserved must be
corrupt, because it is a violation of law ; but it cannot be a corrupt
agreement unless the act of violation of the law was intended.

The authorities are uniform upon this point. It is the essence of
a usurious transaction that there shall be an unlawful and corrupt
intent on the part of the lender to take illegal interest ; in other
words, there must be an intention knowingly to contract for or
take usurious interest. For if neither party intend it, but act
iona fide and innocently, the law will not infer a corrupt agree-
ment. To be sure, when the contract upon its face imports usury,
as by an express reservation of more than legal interest, there is
no room for presumption, for the intent is apparent, res vpsa
loqm1/u,r. But when the contract on its face is for legal interest
only, then it must be proved that there was some corrupt agree-
ment, or device, or shift, to cover usury, and that it was in full con-
templation of the parties. It is not enough that the borrower
intended to make a usurious agreement, but the intention to take
the usury must have been in th« full contemplation of th'e parties,
not of one party, but of both, to the transaction. There must be

an aggregatio mentiwm. This is the rule as lately laid down by
104 LAW OF rrSTTRT.
the New York Court of Appeals, and it is sustained by numerous

authorities ( Vide Condit v. Balckoin, 21 If. Y. E., 219 ; Lloyd
V. 8goU, 4 Peters' B., 205 ; Bank of the Umted States v. Wag-
goner, 9 id., 399).
The terms of a contract are always a matter of fact, and although
more than the legal rate of interest may in fact be reserved or
taken, if it appears from all of the circunistances of the case that
it was not in the contemplation of the parties to reserve or take
usurious interest, the transaction will not be tainted with usury.
There must be an intent to take illegal interest, or, in the language
of the law, a corrupt agreement to take it, and therefore the quo
cmimo is an essential ingredient in all these cases of alleged usury.
If it appears that illegal interest is reserved or taken, and it is
manifest that the parties intended to do, and in fact did do, every-
thing necessary to constitute a usurious loan, then the case is one
of usury, and be in vain for the parties to allege afterward
it will
that they did not intend to violate any law. Ignorance of the law
excuses no man, for all are held to know what the law is ; and if
the acts of the parties are in violation of the law, the only question
which can arise is, as to whether the acts were intended. If it be
the real intention of the parties to receive or reserve a given
rate of interest, and that rate turns out to be usurious, the transac-
tion will be regarded as usury, whether the parties knew the inte-
rest to be usurious or not. The legal character and effect of the
transaction cannot be changed or evaded by any fairness of mere
intention that may be ascribed to the parties, unless the intention
have reference to facts of the transaction itself. No error of the
parties, as to the effect of the transaction imder the law, can give
validity to a contract made in violation of the law. "Where there
is a controversy as to what the transaction is, the intention of the
parties may have effect in determining its character ; \>\\% where
the fact, and intention to do what was done are manifest, the law
isonly to be appealed to for the effects and consequences. Said
Eyre, Chief Justice, in a case before the English Court of Comraon
Fleas seventy-five years ago, in substance " I will begin with :
stating my assent to the proposition, that where a pa^ty on a con-

tract for a loan intentionally takes more than the legal rate of
interest for the forbearance of the loan, he is guilty of usury.
But I add to it this further proposition, tlât whether more than
the legal rate is intentionally taken upon any contract for such
;
CONSTITUENTS OF USUBT. 105
forbearance, is a mere question of fact for the consideration of

the jury, and must always be collected from the whole of the
transaction as it passes between the parties. And I am of opinion
that it never can be determined that any particular fact consti-
tutes or amounts to usury, till all the circumstances with which it
was attended, have been taken into consideration. As, on the one
hand, I am to carry into effect a law which the policy of all times
has deemed useful, and which expressly provides against any sub-
tle devices or evasions by which its penalties may be eluded (and
had it not been so provided, I should have thought it my duty to
use all the influence of my situation to prevent such devices and
evasions from having any effect) ; so, on the other hand, common
justice requires that the whole of the transaction should be before
the jury, and should be taken fairly, with a just application of all
the circumstances to every conclusion of fact which the evidence
will warrant. * * * I repeat, that I cannot agree that in
usury, more than in any other case, the whole transaction is not to
be taken together; that it is not to be analyzed and reduced to all
the fagots of which composed, and to all

it is the conclusions of
fact which from the whole of the evidence and that
fairly result ;
the law does not arise from a fact so considered. Whether more
than the legal rate of interest be intentionally taken for the' loan
and forbearance of money, is a question of fact to be decided by
the jury" {Hammvett, Sir B. v. Sir W. Yea, 1 Bos. & Pul.,
144, 151, 154). Where there has been no taking of usury, and
no reservation of usury on the face of the transaction, then the-
case rôlves itself into the inquiry whether, npon the evidence,
there was any corrupt agreement or device, or shift, to reserve or
take usury and in this aspect of the case the quo animo, as
;
is most important.
well as the act of the parties, This is the turn
which most cases of alleged usury take. It is very seldom that a
transaction occurs, on the face of which there is a reservation of
any interest other than legal interest. The charge of usury, in
most instances, attaches to pretended cases of exchange of credits
or commodi-ties, or where a profit is realized for something besides
the use of the money loaned or the debt forborne. And if in
such case it appears that no disguise has been used ; no seeking to

cover a loan of money under the pretense of a sale or exchange
no effort to obtain an exorbitant gain for the use or forbearance of
money, under the guise of commissions, brokerage or the like,
14
106 LAW OF USDRT.
but the transaotion is lona fide, what it purports to be, the la-v«
no
will not set aside the transaction, for it is violation of any pub-
lic policy against usury.And, indeed, a transaction itself may
reserve more than legal interest on its face and yet be free from
the taint of usury. To be sure, if more than legal interest is
reserved on the face of the affair, usury is made out prima faoie;
for without further proof, the reservation of unlawful interest will
be considered as evidence of a corrupt agreement, which is the
foundation of usurious contracts. But it is competent for the party
to repel the prima faaie evidence of a corrupt agreement, arising
from the face of the transaction by showing, if in his power, that
more than the rate of interest was reserved by mistake, and con-
trary to the intent of the party. This has been frequently held.
The doctrine is well illustrated in an early English case, where
the agreement was to lend £50 and the scrivener, by mistake,
;
drew a bond for more than legal interest, against the will and
without the knowledge of the lender, yet he was held entitled to
recover {Bush v. Budkvnghamh, 2 Yembris, E., 83). In such
cases it makes no difference whether the scrivener be in error in
fact or of law or, if the security bears a different construction in
;
point of law from what the parties intended, such mistake will
not prejudice the lender when his intention was incorrupt ( Vide
Nevison v. WhMyy, Cro. Oar., 501 BuoTdey v. ChaHdhamk, Cro.
; -
Jog., 677). It should be borne in mind, however, that if the

parties intended to make the identical contract on which the ques-
tion arises, n6 extrinsic evidence will be admitted to explain it
away. Said Chief Justice Marshall, in delivering the opinion of
the Supreme Court of the United States in an early case " The :
counsel for the plaintiff has also contended, that although the
paper writing produced would, on the face of it, import a usuri-
ous contract, yet, as the jury might possibly have inferred from it
certain extrinsic facts which would have shown the contract not to
have been within the act, the jury ought to have been left at
But in this case the question arises
liberty to infer those facts.
upon a written instrument, and no principle is more clearly
settled, than that the construction of a written evidence is exclu-
sively with the court" (Lemy
Gadsby, 3 OrcmoKs B., 180).
v.
This is upon the assumption, however, that the instrument con-
tains the unmistakable contract of the parties and even in such
;
a case, if the contract is susceptible of a fair construction, not

;
. CONSTITDENTS OF USURY. 107

at variance with the statute against usury, it is the duty
of the court so to and it
construe it; is a well-settled rule,
in the interpretation of contracts, and is applicable in cases
of alleged usury as in others, that, when a clause is capable of two
significations, it should be understood in that which will have Eome
orperation, rather than in that in which it will have none and, ;
further, it should be understood in the sense which is most agree-
able to the nature of the. contract ; and, in all cases, the agreement
should be examined in reference to what was the common fntention
of the contracting parties, rather than the grammatical sense of
the terms. But, where there is no latent ambiguity in the agree-
ment, no parol evidence will be admitted to explain it {Vide
Pothier on 01)1., ârt 1, cha/p. 1, § 1, a/rt. 7 ; Cdk&r v. Giiy, 2 Bos.

& Pull. P., 565). Sometimes it happens that, by an error in calcu-
lation, an excess of interest may be included in the transaction
but this will not necessarily make the transaction usurious. To
constitute usury, as has been before stated, there must be an illegal
agreement and this cannot be predicated of a ease in which an
;
excess was the result of accident or inadvertence, without any know-

ledge that more than the legal rate was secured by the cgntract.
It must have been the intent of the parties that the excess of
interest be included and paid. This has been repeatedly decided.
Said Sutherland, J., in delivering the opinion of the old Supreme
Court of the State of New York, in a case involving the precise
question :
" Nor does the fact that the note first discounted exceeded
the debt due to the company to a small amount, and that the excess
was paid to Butler, vary the was evidently the intention
case. It
of the parties that the note should be for the amount due only
but upon stating the account, and casting the interest, there was
found to be a trifling difference of twenty dollars " {N. IT. Fire-
men's Insurance Go. v. Sturges, 2 Oow. P., 664, 677). A mere mis-
take in calculation was never held to be usury, for the reason that
theremust be a corrupt agreement, of which that is no evidence.
There must be an intent to take or reserve more than the legal
interest and the quality of the intention, in order to* constitute
;
usury, must be, that it is willful, or, in other words, there must be
a corrupt agreement, and not upon a just and true intent. Hence,
as we have seen, when more than the allowed rate of interest was
reserved in the security by the mistake of the person who drew it,
and contrary to the inteilt of the party, it was decided by the
;
108 ^^W OF USUBT.
English courts not to be usury ; usury being a penal act, and no

man being criminal by mistake (
Vide Booth v. CooJc, 1 Fre&mmâ
R., 264 ; BucMmMiltm-d, 2 Yentrii E., 107). Indeed, from
v.
the very words of statutes of usury, it would appear that the law
looks straightly to the intentions of the parties ; and it is accord-
ingly upon those words that the courts exercise their discretion of
examining what is the real substance of the transaction, and not
what isthe color and form. And, therefore, all loans, properly so
called,upon which more interest is taken than is allowed by statute,
and which interest is taken willfully and corruptly, that is, with a
usurious intent, no matter in what shapej, are usurious contracts
and when there i:S an absence of this intention to take or reserve
the illegal interest, there can be no usury.
To sum up upon this point, then, it is admitted by all the writers
and in all the codes upon the subject, that the intention of the
contracting parties is the principal subjeet of inquiry in determin
ing whether a contract be usurious or not ; for, if the intention
of the contracting parties be righteous, the intent cannot be within
the statutes of usury. It is said by Mr. Justice Gould, of the
English courts, that " the ground and foundation of all usurious
contracts is {Muvray v. Hm-ding, 2 Bl.
the corrupt agreement "
S., 865). The go upon the principle, that the corrwpt
cases all
i
agreement is the essence of the oflfense, and that a party shall
therefore be permitted to show what that agreement was, and that
it has not been correctly expressed in the written contract. The
question of usury is always a question of intent and there can be ;
no usury without an intention to take a greater rate of interest

than is allowed by law. But mark, however, it is not necessary
to the offense that there should be cm aelmal intention to violate
the statute. This has been referred to before. Usury may be
committed by parties who, in point of fact, never heard of the
statute. Whether the party intended to take more than the legal
rate by way of interest, is a question of fact; and, if it be found
that he did,it is an invariable inference of law that it was taken in
pursuance 6f a corrupt agreement, which consummates the offense.

The doctrine is well illustrated
by a case in Massachusetts, in which
the court say " It
probable that, in this case, there was no inten-
: is
tional deviation on the part of the bank, but a mistake of their

right. This, however, is consideration which must not influence
Sf,
our decis'ion. The mistake was not involuntary, as a miscalcula-

CONSTITUENTS OF USURY. 109
tion might be considered, where an intention of conforming to the
legal rate of interest was proved, but a voluntary departure from
the rate. An excess of interest was intentionally taken, upon a.
mistaken supposition that banks were privileged in this respect tO'
a certain extent. This was, therefore, in the sense of the law, a
"
corrupt agreement ; for ignorance of the law will not excuse
{Maine Bank v. Butts, 9 Mass. R., 55). The intent of the parties
is a legal inference from established facts; but, in all cases of
usury, must actually appear that more than the legal rate of
it
interestwas intended to be taken, or that the amount intended to

be taken was greater than the law allowed. It is not necessary
that the party intended to act contrary to the statute but he must ;
intend to take a greater rate of interest than the statute allows.

"Where the parties adopt a mode of calculation which gives the
creditor more than legal interest, and the parties show that such
will be the result, the transaction will be usurious, although the
parties may be ignorant that such taking of illegal interest was a
violation of the law ; and where the parties adopt a theory which
they suppose to be in accordance with the statute against usury,
as they construe it, but which,, nevertheless, results in giving the
creditor more interest for the use of his money than the law
allows, the transaction will be considered usurious. This is not
like the case of .an error in fact, by which more than legal inte-
rest is reserved. In the latter ease the transaction is not vitiated
by the error, while in the former it is ( Vide GJiilders v. Dean^
4 EandolpKs H., 406). But there can be no usury where either
of the parties remains ignor.ant of the usurious reservation. For
example, when more than lawful interest is reserved, with the
knowledge of the lender, but without the knowledge of the bor-
rower, in such case the transaction is not usurious (Smith v.
Beach, 3 Day's B,., 268). The question of usury is always put
upon the intention and purpose of the parties and in order 'to ;
make a contract usurious, it must be apparent,

either upon the
face of it by evidence, that the intention of the parties in the
or
creation of it was, by means of shift or device, to take more than
legal interest for the loan or forbearance of money. It depends
upon the im,tent of the parties, and they may show anything to
make it appear that there was no corrupt agreement. The authori-
ties, both ancient and modern, speak a language on thia point
too uniform and plain to be mistaken. We cannot know the

110 LA-W OF V8URY.
agreement unless we look at the intention. This is the essence of

every contract, as well as of every crime.There must be a criminal
intention or there can be no guilt. Upon any other principle the
statute against usury would operate as a snare, in which the artful
and designing might entrap their neighbors by setting up and
establishing tisury where none was ever intended. But where a
party deliberately and knowingly takes a greater rate of interest
than the statute allows, the law fixes the interest and pronounces
the transaction usurious. Thus it appears that, in order to con-
stitute usury, there must be (1) a loan, express or implied (2) an ;
understanding between the parties that the money lent shall or

may be returned ; (3) that for such loan a greater rate of interest
than is allowed by law shall be paid or agreed to be paid, as the
case may be and
; (4) a corrupt injtent to take more than the legal
rate for the use of the money loaned. Unless these four things
concur in every transaction, it is safe to affirm that no case of usury
can be declared ; and this may be regarded as a rule universally
^
recognized in all of the States.
CHAPTER X.
TEANSAOTION S NOT TADfTBD BT USURY CERTAIN RULES APPLICABLE

TO USURY CONTRACTS NOT USURIOUS BECAUSE THERE IS NO LOAN
ELEMENTS OF A LOAN SALES OF CREDIT GUARANTIES.
The four prerequisites of a usurious transaction are well ascer-

tained and well settled. A profitmade or loss imposed on the
necessities of the borrower, whatever form, shape or disguise it
may assume, where the treaty is for a loan and the capital is to be
returned at all events, has always been adjudged to be so much
profit taken upon a loan, and to be a violation of those laws
which limit the lender to a specified rate of interest but ; tliis can
only be so because the four indispensable things concur to make it
a case of usury. And these rules are applicable everywhere, and

under the usury laws of every State. There are other rules appli-
cable to cases of usury, but which are not uniformly recognized
in all the States. For example, in the State of New York, a
transaction, usurious in its inception, is absolutely void in whose
TRANSACTIONS NOT USURIOUS. Ill
soever hands it may be while in some of the States a contract
;
and security are void for usury only as between the original pap
ties, and not as against assignees and purchasers in good faith,
without notice that the instrument was infected by usury. One

or two other things, however, may be stated as of general applica-
tion, in addition to the uniform rules already laid down ; as, for
instance, a transaction which is usurious in its inception must
always remain so, as between the original parties to it and, again, ;
if a transaction be free from usury in its origin,* no usurious con-
tract respecting it can taint it with usury that is to say, a subse-

;
quent agreement to pay a usurious interest wiU not vitiate a con-

tract legal in its inception.
All of the preliminaries being settled, the way now seems to be
open for the consideration of those eases which are and which are
not usurious within the several statutes against usury. And first
in order, those transactions which are not usurious will naturally

come under notice, and herein first as to those transactions which
are not usurious because they do not amount to a loan. Cases in
which this element is wanting are those of sales, compensation
for service, credits and the like and a reference to authorities will
;
best illustrate the doctrine by which they are governed, premising,

however, must be a lend-
that, in order to constitute a loan, there
ing,and it is essential to the nature of a loan that the thing

borrowed is, at all events, to be returned; that is to say, the
component parts of a loan are a voucher or contract specifying the
nature of the transaction, the rate of interest for the use -of the
money loaned, and the intention of one to loan and the other to
borrow. It is not necessary, however, to the creation of a loan
that money should be paid on the one hand and received on the
other ; for the circumstance of a man's money remaining in
another's hands, in consequence of an agreement made for that
purpose, will equally constitute a loan. But in such case, it is
necessary that the debt be absolutely incurred, and not merely

resting upon an executory agreement, the execution of which
depends upon circumstances that may never take effect. But more
of this when the cases are considered.
In all cases where property, goods or things in action, and the
like, are 5(w-fflj/?<?e sold, instead of money advanced, the courts hold
that usury cannot attach, for the want of a loan. In an early action
in the Court of Appeals of the State of New York, the question
112 LAW OP USURT.
was invoked and definitely settled in respect to a sale. The facts

in brief were A person had a piece of land which he was willing
:
to sell for $10,000 in cash, but the person proposing to buy, being
unable to pay cash, it was agreed that a deed and a bond and
mortgage for $12,000, payable at a future time with interest,
should be executed, to remain in the seller's hands until he could
negotiate the sale of thebond and mortgage for a sum eGûal to the
price he asked in cash for the land, and the deed then to be deliv-
ered. The papers were executed accordingly, the bond and mort-
gage afterward sold for $10,000 cash, and the deed delivered at
the same time. On bill filed to foreclose the mortgage, the
defense of usury was interposed, and overruled by the late vice-
chancellor of the eighth circuit. The decree was subsequently
aflfirmed by the Supreme Court, and the defendant appealed to the
Court of Appeals, in which the decree was affirmed, and the trans-
action held not to be usurious. Jewett, J., said :
" The evidence,
in my judgment, shows clearly that the upshot of the whole nego-
tiation and contract was, that Williams would not sell unless the
sale would produce him in hand $10,000, or thereabouts. But he
would sell upon a credit for $12,000, upon condition that he could
first ascertain that Samain's bond and mortgage for that sum, upon
the credit specified with interest, would sell for $10,000 cash in
hand. That was ascertained, upon which the contract was con-
summated and carried into effect. The transaction between "Wil-
liams and Samain, so far from b.eing tainted with usury, is shown
to be nothing more than the ordinary case of an owner of pro-
perty, desirous to sell, making a difference in price between a sale
for cash in hand and sale on time, with the further condition not
to sell absolutely till he ascertains that the security proposed to be
taken for the price on time will sell for a sum in cash equal to the
sum he is willing to sell for being paid cash in hand, a caution
which the owner has a legal right, to exercise without being liable
to have usury successfully imputed in the contract " {Broohs y.
Avery, 4 N. Y. R., 225, 229).
To the same general import is a late case in the Supreme Court
of the United States. The case came into the Supreme Court by
a cross-appeal from the decree of the District Court of the United
States for the district of Indiana. The action in the court below
involved the validity of a contract, the chief subject of which was
a sale of land by parties named Briee and Birkey to one Euffner
TRANSACTIONS NOT USURIOUS. 113
for the sum of $38,000 in ten annual installments, the sale also
including certain personal property. The parties had formed a
"
partnership in February, 1854:, " for dealing in lumber, farming
and other objects. Brice and Birkey advanced money, and each
had an interest of one-third in ,the lands, whose title was in the
name of Ruffner. In October of the same year the partnership
was dissolved, and RufEner, the defendant, afterward agreed to pay
certain sums of money to the other parties for a release of their
interest in the land, and gave them his obligations. Afterward,
in February, 1855, in order to extinguish these obligations,
which he was unable to meet, he agreed to reconvey to Brice and
Birkey certain tracts of land. In the spring of 1855 the defendant
refused to let them have possession of the lands, and finding that
they could not obtain possession without grât and ruinous delay,
a proposition was made to sell or release all their interest in the
lands of the firm if the defendant Eufiher would pay in cash the
amount of money advanced by them, which was ascertained to be
about $20,000.They professed a willingness to receive this amount
if paid in cash or security given that it should be actually paid in
six months. Euffner, not being able to give the security required,
it was finally proposed that the purchase should include certain
personal property owned by Brice and Birkey on two a credit of
years, which was agreed and a written
to at the price of $38,000,
contract accordingly executed, and notes and a mortgage also exe-
cuted for further security, to which the defense of usury was inter-
posed. The Circuit Court found that the actual indebtedness of
Ruffner to Brice and Birkey was $20,000, and therefore held that
amount were valid, but that the remaining notes
the notes for that
for S18,000were usurious and void, and decreed accordingly;
From this decree both parties appealed, and the Appellate
Court held that it was not a case of usury. Grier, J., in.
delivering the opinion of the court, said: "Was the con-
tract of Brice and Birkey with Ruffner, which shows the con-
sideration of the mortgage and notes assigned to the complain-
ants, usurious ? * * * To constitute usury there must either
be a loan and a taking of usurious interest, or the taking of more
than legal interest for the forbearance of a debt or sum of money
due. * * * The original contract by which a debt is created
may be for the purchase and sale of land, and it will be, neverthe-
less, contrary to the statute for the vendor to demand or receiv©
15
;
114 LAW OF USURY.
more than legal interest for the forbearance of such debt, as

in the case of CrawfordJohnson (11 Indiana Reports, 258),
v.
where respondent's notes were taken for two per cent interest, in addi-
tion to the legal interest, on the sum due for the purchase-money of
land. But it is manifest that if A. propose to sell to B. a tract of land
for $10,000 in cash, or for $20,000 payable in two annual install-
ments, and if B. prefers to pay the larger sum to gain time, the
contract cannot be called usurious. * * * Such a contract
has none of the characteristics of usury ; it is not for the loan of
money or forbearance of a debt, Does this case come within this
category ? We are of opinion that it does. * * * The decree
of the court below is, therefore, erroneous, in so far as it is aifected
by the assumption that the contract was usurious " (JSogg v. Ruff-
ner, 1 Black's E., 115j 118, 119, 121).
And in a recent case, in the Court of Appeals of the State of
New York, the rule was laid down that the mere fact that, in a
contract for the sale of land, a higher than the legal rate of inte-
rest is reserved upon-the deferred payments does not render the
transaction usurious.
Selden, J., in his opinion, said :
" But there is another reason
wliy the defense of usury cannot prevail. The note was not given
for a loan of money or of goods, or for a pre-existing debt of any
kind, but upon a lot of lands in Florida. The case, in that respect,
is precisely like that of Beete v. & C, 453), where
Bidgood (7 B.
notes, executed in England and payable in England, but given for
the purchase-money of an estate in Dunmore, included interest at
six per cent, which exceeded the rate allowed in England. The
Court of King's Bench held that the notes were not usurious
that, although the word interest was used, the substance of the
transaction was, that the purchase-money of the estate was to be
paid in installments of a certain amount, a contract which was in
no respect illegal. There can be no doubt of the correctness of
this decision. To constitute usury, there must be either a present
loan or a forbearance in respect to some debt previously existing.
In such a case as this, there is neither " {Cutler v. Wright, 22 F'.
Y. B., 472, 482).
This
rule, that usury cannot be predicated upon a sale, applies
qfiwell to the sale of one's credit as anything else. An import-
ant case involving this question was decided by the old Supreme
Court of the State of New York. The facts were ; In June, 1840,
one Muir made two notes, one for $2,000 and the other for $1,000,
payable at four months, and procured them to be indorsed for his
accommodation by one Barber and one Leman. The notes were
then presented by Muir to one Burr, a broker in the city of New

York, with a view to raise money on them. Burr said it would
be necessary to have the notes indorsed by a person residing in
the city, whereupon Muir authorized him to "buy a name or
guaranty." Application was accordinglymade by Burr to a firm
of brokers, of which the plaintiff was a member, who agreed to
make the indorsement for two and a half or three per cent. These
terms were acceded to by Burr, and the indorsements made on
payment of the per centage. One of the notes was discounted by
the Union Bank, of which the plaintiff was a director, and the
other by some other bank in the city of Ifew York. After deduct-
ing the sum paid for the indorsements and his own charge, B^""
paid the balance of the proceeds of the notes to Muir. About the
time the notes fell due, Muir made two other notes, and left them
with Burr to be discounted, directing the avails to be applied to
the payment of the first notes. They were accordingly discounted
by the plaintiff's firm, with full knowledge of the circumstances,
and the proceeds applied as directed by Muir. The action was
upon the last notes. The referee reported in favor of the plaintiff
for the amount of the two notes with interest, and concluded his
report by saying that upon a fair construction of the testimony the
first transaction was, in his opinion, the mere sale of indorsements,
or, in other words, the giving of a conditional guaranty of the pay-

ment of the notes, which the plaintiff received a stipulated com-
for
pensation, and that there was no loan of money or of choses in
action within the meaning of the statute of usury. The judg-
ment was approved by the court; Nelson, Ch. J., saying,
among other things: "It has been repeatedly decided under
this afct, which is taken, substantially, from the statute of
Anne, that, in order, to make a transaction usurious, there
must be a loam, of 'money, goods, or things in action' (to use
the words of our statute), and an agreement to take more than
legal interest for the forbearance or some device contrived for the
;
purpose of evading or concealing the appearance of a loan, when

in truth it was such. The authorities are full to this effect. * *
It is not usury, therefore, for an acceptor to discount for a premium
his own acceptance du^ at a future day ; for this is not a Joan, but
116 LAW OF USURY.
an anticipation of payment ; * * * nor is the hona fide sale of a

bill for a less sum than the amonnt payable upon its face usurious.
* * * And a contract, made at the time of sale, to pay more
than legal interest on the purchase-money of an estate hona fide
sold, has been decided not to be usurious, * * * In all these
eases, however, if the transaction be a mere device to cover and
conceal a loan at unlawful interest, it then comes within the statute.
But whether there was such a device, a corrupt intention to evade
the law, is a question of fact for the jury to determine, upon a
consideration of all the surrounding circumstances. * * Apply-
ing this test to the present case, I am unable to see how we can
declare, as matter of law, after the finding of the referee, that the
transaction is within the statute. We see there was no loan between
the parties, and that, so far as respects the plaintifE's connection
with the first he merely sold the guaranty of his firm.
notes,
There was no application for a loan; and the referee has expressly
found that none was directly or indirectly made. In short, the
dealing between the parties was, in fact, just what, it purports to
have been, viz., a stipulated compensation for the guaranty of the
plaintiff's firm. The case is, therefore, narrowed down to the
question, whether a hona fide sale of one's credit or security for
the use and benefit of another, unconnected with a loan, is,, per se,
usurious. * * * From this review of the cases, in our own and
the English courts, we may, I think, safely conclude that a gua-
ranty of paper, unconnected with a loan, and really and honafidt
intended to be what it purports on its face, viz., a security for pay-
ment, whatever other objections may i)e made to the transaction,
isnot obnoxious to the imputation of usury, even if a commission
of more than the legal interest be agreed upon and taken for the
same." The report of the referee was permitted to stand [Ketcham
V. Bcm'ler, 4 RiWs B., 224, 227-229, 234). Here, it will be
observed, the party received two and a half per cent for guarantee-
ing a note, and the court held was not a loan, and could not,
that.it
therefore, be a case of usury.This case was taken to the Court of
Errors, and the judgment of the Supreme Court was affirmed by a
vote of ten against nine, although it seems that one of the majority
differed with the Supreme Court in the opinion that the first trans-
action referred to was not usurious, but he thought the second
notes, on which the actjon was brought, were not connected with
TRANSACTIONS NOT USURIOUS. .
117
the first, and heilce he voted for affirmance {Ba/rber v. Ketohmu,
7 MUVs B., 4A4:).
In a late case in the same court, the same principle was involved,
and the result was the same. The defendants were foreign fruit
dealers in the city of ITew Tork, and, for the purpose of enabling
them to do business more advantageously, they proposed to the
plaintiffs that they become the guarantors of their paper at a rea-
sonable commission for the trouble and risk attendant upon the
same. The plaintiffs assented to the proposition, it being expressly
agreed between the parties that the plaintiffs were not to advance
any money or make any payments for the defendants, but only to
guarantee to those who might give credit to the defendants the
payment of such debts as the defendants might contract on the
credit of the plaintiffs. Under this arrangement large transac-
tions were had, and in August, 1846, the defendants gave the
plaintiffs a bond and warrant of attorney, to secure the payment
of $14,000, on account of the liabilities which the plaintiffs had

contracted for the defendants, and the plaintiffs entered up judg-
ment and issued execution. The defendants subsequently moved
the circuit judge of the first circuit to set aside the judgment, on
the ground that the transaction was usurious; but the circuit
judge denied the motion, holding that the transaction was not a
loan by the plaintiffs of money, goods, or things in action, within
The defendants appealed to the Supreme
the-statute against usury.
Court, where the matter was fully discussed, and the decision of
the circuit judge was affirmed. Bronspn, Ch. J., after stating that
the plaintiffs sold their warranty or credit to defendants for a
commission of two and a half per cent on securities payable in
four months, and declaring the same to be a valid transaction,
said : " It is easy enough to call the transaction a loan, but that is
only giving it a wrong name for the purpose of bringing the case
within the statute of usury. That, like every other statute, ought
to be rigidly enforced, whatever may be thought of its policy ; but
we cannot make a universal remedy for bad bargains vsdthout
it
usurping the power of legislation. As the. law now stands, a man

has as good a right to sell his credit as he has to sell his goods or
his lands, and if he deal fairly, he may take as large a price as he
can get for either of them " {Moore v. Rowland, 4 Benio's E.,
264, 268).
In another case in the same court, a commission merchant in
;
118 LA-w OF usubr.
the city of New York agreed to accept drafts of a country mer-

chant to the amount of $20,000, taking a bond and mortgage front
him for twice that sum for security, and it was further agreed that
all produce shipped to New York by the country merchant shoulc
be sent to the former for sale on commission, who should thus be

'
kept in funds to meet his acceptances as they became due, and
that he should be entitled to two and a half per. cent commission
on all advances or acceptances sent otherwise than with produce.
The countryman's drafts were afterward accepted and paid by the
city merchant to an amount exceeding the value of the produce eon-
signed, and charged the country merchant with interest on all sums
thus paid, together with two and a half per cent commission on
acceptances not sent with produce. On default of payment, an action
was brought to recover the sum advanced upon one of the drafts,
and the court held that the transaction was not necessarily usuri
ous, eêcially as it appeared that the charge for commissions was
customary among merchants engaged in similar business {Sivy
dam, V. Westfall, 4 HilVs R., 211). Proof, on the part of the
plaintiff, of the reasonableness or customary nature of this charge
was probably unnecessary, although such proof was actually given.
It has been held by the New York Court of Appeals, in unquali-
fied terms, that, where an indorser of a note makes no advance
upon it, the fact of his making a charge for his indorsement will
not make the note usurious in the hands of a person who receiVes
it from the maker in the usual course of business and pays value
for it without any knowledge of the transaction between the maker

and indorser. It seems that if the defense of usury can be sus-
tained in such a case, it must be because the note had a legal
inception in the hands of the indorser before it was offered to the
party taking it for discount; and the court held that indorsing a
note for the maker's accommodation for a premium to be paid by
the latter does not make the indorser a holder, or in any way affect
a party to whom the paper may be subsequently negotiated. The
amoimt of. premium paid by the maker for the indorsement was
two and a half per cent {Kitohel v. Schench, 29 If. Y. B., 516
cmd vide Van Duser v. Sbwe, 21 ib., 531 ; Zemitt v. Be Lany, 4
ib., 364).
In a case of the late Court of Errors of the State of New York,
on appeal from the late Court of Chancery of said State, it appeared
that a bond and mortgage for $3,000, payable one year from date.
with interest to become due half-yearly, and on which over five

months' interest had already accrued, were assigned absolutely by
the holder for $2,600, in order to raise money. The assignment
stated the consideration paid by the assignee to be $3,000,
and contained a covenant that this was due and owing on the bond
and mortgage. At the time of executing the assignment, the
assignor also executed to the assignee a bond with surety, condi-
tioned that the mortgagor should pay the $3,000, together with
the interest, by the day appointed for that purpose in the securi-
ties assigned. On a bill filed by the assignor to set aside the
assignment and have the bond of guaranty canceled, it was held
that the transaction was, on its face, a mere sale of a chose in
action, unconnected with a loan, and therefore not usurious ê/- se,
although the opinion was expressed by several of the senators
that, in an action upon the bond of guaranty, the assignor's recovery
would be limited to the actual amount paid for the bond and mort-
gage, notwithstanding the consideration expressed in the assign-
ment. Franklin, senator, said: ".To my mind, there is a clear
and palpable distinction between the purchase of a chose in action,
legal in its inception, and the loaning of money, and that the prin-
ciples of law which govern and control the former are not appli-
cable to and have no binding effect upon the latter " (Ra/pehje v.
Anderson, 4 HilVs R., 472, 482). The doctrine of this last case
had been previously enunciated by the same court, and substantially
held in several cases in the late Supreme Court of the State.
An action was brought in the latter court by the indorsee against
the iudorser of two promissory notes, the consideration of which
was rwm, sold by the iudorser to the maker. About three months
before the notesbecame due, the payee employed a broker to raise
money for him upon the notes, and delivered them to him, indorsed
ia blank. The broker applied to the plaintiff to discount the
notes, and he cashed them, 'charging a discount of one per
cent per month for the time they had to run, being at the
same time informed that the notes belonged to the indorser, and
that they were discounted for his benefit. The notes, when due,
not being paid by the maker, were protested, and notice of the
non-payment given to the indorser, and the action was brought.
The circuit judge, before whom the suit was tried, instructed the
jury that the plaintiff was entitled to a verdict for the amount
actually advanced by him, with lawful interest thereon from the
120 i^T*^ OF USURT.
time of the advance, and the jury found accordingly. The defend-
ant excepted to the direction given by the judge, and applied to
the Supreme Court for a new trial. The application was denied,
and judgment was entered for the plaintiff; whereupon, the defend-
ant brought error to the Court of Errors. And it was held, in the
latter court, after mature deliberation, that discounting a business
note at a rate of interest greater than the legal rate' was
not a usurious transaction ; that a note, valid in its inception,
might be bought and sold, as a chattel, at its real or supposed
value ; that the transfer by the payee of a valid, available note,
upon which he might maintain an action against the maker, and
which he parts with beyond the legal rate of interest, is not usurious,
although the payee, on such transfer, indorses the note and that, ;
on non-payment by the maker, the indorsee might maintain an

action against the indorser. Said Beardsley, senator :
" How, then,
does the present transaction partake of the character of a loan ?
It is said by the counsel of the plaintiff in error that every advance

of money for a promissory note to a person who is, or may become,
liable to repay it, is, in effect, a loan. It is true, every loan implies
an advance of money, or money's worth ; but it is not true that
every advance of money is a loan, nor that the mutual liability of
the receiver to refund is the true characteristic of a loan ; and why
should the .sale of a note be placed on a different footing from the
sale of any other article of property ? Suppose a man buys a bill
of exchange at a discount ; is that a usurious loan, merely because

of the contingent liability of the indorser if the acceptor should
not pay ? Or, suppose a man purchase a farm, and takes a deed
with covenants, and is afterward evicted, the grantor is liable to
refund the purchase- money, with interest ; but this is not on the
principle of a loan. So, in the purchase of a chattel, if the tijle
fail, the vendor must return the money, but not on the principle
that the money paid was a loan,, or in the nature of a loan." Upon
this class of reasoning, the judgment of the Supreme Court was
affirmed {Crane v. Hendriohs, 7 Wend. B., 569, 616, 664 ; and
vide Ingalls Y.Lee, 9 Barb. E., 647 Burton v. Baker, 31 id., 241).
;
In a much an important rule is laid down in respect

later case
to the imlent with which a transaction is entered into. The defend-
ant, having a large debt against one who had assigned his estate in
trust for creditors, applied to the assignees for a loan of $12,000
from the trust-fimd, until a dividend should be made ; whereupon
;
:
the latter lethim have notes belonging to the estate, which, esti-
mating them at their nominal value, amounted to $8,254.69, besides
cash to the amount of $3,745.31, and took defendant's note for
$12,000, with interest. The note not being paid, an action was
brought to recover the amount of it. The defendant set up usury.
The case was referred to referees, and on the trial evidence was
given tending to show the notes which the defendant received to
have been worth considerably less than he allowed for them. A
majority of the referees reported that, on the testimony, they
" were of the opinion, as matter of la/w, that the said note was
void for usury, and therefore reported that there was nothing diie
the plaintiff." The plaintiff moved to set aside the report. " Per
curiam : The on which the two
case states the special grounds
referees proceeded who They have
agreed in making the- report.
not found any intention in the trustees of Eathbone to take usury,
or that there was any shift or device to evade the statute. Indeed;, y
they have not drawn any conclusions oi fact from the evidence,
but say they are of opinion, as matter of law, that the note was
'
void for usury.' In this we think they erred. The evidence does
not necessarily, and as matter of law, make out the fact of usury;
and there must, consequently, be a rehearing " (Sizer v. Miller,
1 SilVs R., 2i2iT, 230). And to the same import is a late case in
the New York Court of Appeals, wherein it was held that, where
the transfer of a chose in action is coupled with a loan of money,

though the security prove uncollectible, the transaction is not
necessarily usurious and that, in such case, the onus is upon the
;
party alleging usury to show that the lender, at the time of the
transfer, knew, or had reason to believe; that the security was
uncollectible {Thomas v. Mv/rranj, 32 N. Y. JR., 605 and vide ;
Mwmford v. American Life Inswranoe amd Trust Go., 4 ib. 463 ,
The Dry Dock v. The Same, 3 tJ. 344). ,
A transaction was held not to be usurious where the facts were

The plaintiff sold the defendant a promissory note he held against
a third party for a certain amount, with interest for a time over
four months anterior to its date, for which he took the defendant's
note for the amount, including the interest, computed according to
its terms. The defendant not paying his note when it became due,
suit was brought upon it, and the defense set up was usury. But
the court held that a promissory note, for the payment of a par-
ticular suna, with interest from a day anterior to the date of the
16
;
122 i-4Jr OF USURY.
note, in itself affords no evidence of usury ; and, further, that it
was not usurious, in selling a note payable at a future day, to take

a note for the principal and interest of the note sold, computed to
the day of sale, without making a râte of interest. The court
reasoned that, if the note was to be considered as evidence of usury
lent at its date, there would, perhaps, be more than legal interest
reserved ; but, says the chief justice, " it is well known that notes
are given for property sold, and upon other business transactions,
as well as for money Usury is a defense which must be
lent.
strictly proved, and the court will not presume a state of facts to
sustain that defense, when the instrument is consistent with cor-
rect dealing. If a merchant sell goods upon a credit of six months,
and, after the sale, the purchaser gives his note, bearing interest
from the time of sale, the transaction is an honest one. When an
instrument will bear two constructions, one of which vdll rerfder
it operative and the other void, the former should be adopted.So
when be presumed in relation to a contract, those
facts are to
should be preferred which render the instrument valid ; it is suffi-
cient, in this case, that a note so drawn is not necessarily usurious "
{Mm-tvn V. Feeter, 8 Wend. B., 533, 53^).
In a case which came before the late Supreme Court of the State
of New York, on demurrer to the declaration, the facts were, that
the defendant held a promissory note for $210, with interest, and
one month after the date of it, by a memorandum indorsed on the
back of the not^, signed by him, for the consideraUon of $200,
paid to him by the plaintiff, assigned and transferred the note to
the plaintiff, and guaranteed, the payment thereof. The maker
did not pay the note when due, and the action was bronght against
the guarantor to recover the amount paid for the note, with inte-
rest ; the defendant resisted a recovery, on the ground of usury
but the court held that it was not a case of usury, and declared
that the transfer and gua/romty of a note for a larger sum, in con-
sideration of a less sihn, is not, per se, usurious ; the guarantor in
such case, when called on for payment, being liable only to refund
the amount received by him, with the interest thereof {Mazuzwn
V. Mead, 21 Wend. B., 285). The only difference, in principle,
in this case and that of Crane v. Hendricks (7 Wend. B., 569)
is, that in the latter the defendant simply indorsed the note in suit,
and it was held that the consideration advanced was, in construc-
tion of law, secured by the indorsement, and could be recovered;
:
TEANSACTI0N8 NOT USUBIOUS. 123

whereas, in the former, there was a guaranty which is ahsohite, and
a demand and notice are waived. True, the guaranty is equiva-
lent to a direct promissory note, with superadded security ; but the
ordinary indorsement has the same effect ; and in both cases the
transaction is held not to be usurious, because it is that of a sale,
and not a loan. The principle involved in these cases is important,
for similar transactions are of almost every day's occurrence, in
which bonds and mortgages are purchased for a sum less than that
for which they were originally given, and transferred from one
party to another by assignments containing covenants of guaranty,
and in very many instances with collateral bonds as additional
security. Such contracts, however, cannot be construed into loans
of money to be adjudged void on the ground of usury, but, accord-
ing to the spirit and true construction of the cases, must be sanc-
tioned and upheld. Of course, the maker of the instrument can-
not be affected by the terms under which the transfer is made if ;
valid in its inception, it cannot be infected by usury by the terms

of any subsequent transfer. This doctrine is too well settled to
requii'e comment or citation of authority.
Numerous cases of the same tenor are to be found in the judi-
cial reports of ~ other States. In the State of Connecticut, where
it was agreed between commission merchants of the city of New
York and a country trader, that, on being furnished with a letter
of indemnity, the city merchants would become responsible to a
limited amount, and charge for lending their names, if put in funds
in time to meet the payment, half per cent, and two and a half
jp&r cent in all cases of advance and it appeared that the latter
;
charge was intended by the parties as a fair compensation to the

city merchants for their trouble in providing for acceptances, which
it was the duty of the country dealer to pay, and not as a cover
for a usurious loan ; it was held by the Supreme Court of Errors

that the commissions charged under such agreement were not
usurious. Bissell, J., in delivering the o'Jiinion of the court, said
" Whether a transaction be or be not usurious is generally a
question of intention y and that question is not only proper for
the consideration of a jury, but is within their exclusive cogni-
zance. At the same time it is not denied that a contract may be,
per se, usurious. As if, more than the lawful interest
for instance,
be reserved on the face of a security for money loaned, and that
be unexplained, the corrupt intent might be irresistibly inferred •
;
124 i^H^ OF USTTRY.
and it would be the duty of the court so to instruct a jury. But

this is not that case. The contract is ostensibly a contract of
compensation for the trouble and inconvenience of raising money
to meet the debt of another. * * * The charge of one-half per
cent was a compensation to the plaintiffs for the use of their names.
They and their doing so for a compensation
lent their- credit,
imposed on them no additional obligation to meet the drafts when
they came to maturity. * * * Here the transaction was, on
the face of it, a compensation for trouble. "Whether such was the
real motive of the transaction, or whether it was a case for a loan
of money, and a contrivance to evade the statute, was a question
of fact for the jury. * * * That question was distinctly put
to them, and they have answered it. I see no reason for disturb-
ing the verdict on this ground " {Deforest v. Story, 8 Conn. H.,
513, 519, 520). In a later case in the State of Connecticut, where
it was agreed between A. and B. that A. should indorse' B.'s notes,
payable at the bank from time to time, as B. should require, for

the term of one year, to an amount not exceeding in the whole,
at any one time, the sum of $15,000, and should also during that
time advise B.'s agent respecting his financial affairs, as far as he
could consistently with his other engagements; and for A.'s
indorsement and services B. was to pay him a sum equal to six
per cent per awnMm on the amount of his indorsement, from the
time such notes were given until they should be taken up by B.
the jury found that the contract fairly expressed the intention of
the parties was not designed by them to be a contract for
; that it
the loan of and that the sum stipulated to be paid to A.,

money ;
for his indorsement and services, was no more than a fair and
reasonable compensation therefor, having reference to the general
embarrassments of the coqntry at the time, and the kind of secu-
rity agreed to be given ; and the court held (1) that the contract
was not, upon its face, usurious ; (2) that the presumption result-
ing from the terms of the contract, and especially the peculiar
manner in which A.'s remuneration was to be made, that it was
designed as a cover for a usurious loan was repelled by the find-
ing of the jury, and the transaction was therefore sustained. Said
Waite, J., in delivering the opinion of the court :
" Should it be
said that great danger may be apprehended from the perversion
of such contracts to usurious pmôses, the answer is, that when-
ever they are so perverted they will be void. The intent of the
TRANSACTIONS NOT USURIOUS. . 125
parties in making the must govern and that is a ques-
contract ;
tion of fact to be determined by that tribunal whose business it is.

to pass upon such matters; and if a usurious intent is found, it
will vitiate the contract." Still it was said that such contracts are
so liable to be perverted to usurious purposes, that they are to be

viewed with great jealousy [Bechwith v. Windsor Ma/nufaGturinff
Co., U Conn. B., 594, 606).
And in a still later case in the State of Connecticut, where the
action was against the indorser of a promissory note, the general
doctrine in respect to the sale of business paper was reiterated..
The payee of a negotiable promissory note for $771.96, on time,,
indorsed by the defendant, transferred the same to the plaintiff at
a discount equivalent to one and a half per cent per month for the
time the note had to run. The note was not paid at maturity^
and was therefore protested and due notice thereof given to the
defendant as indorser, and the action was brought to recover the
amount of the note of the defendant. The defense was usury.
The court charged the jury that the transaction was not necessarily
usurious, and that in case they should not find that the transaction
was intended as a mere cover for a usurious and corrupt loan of
money by the plaintiff, they ought to find for the plaintiff for the
full amount of the note without any deduction therefrom where- ;
upon they returned a verdict for the plaintiff for the full amount
of the note, and the defendant moved the Supreme Court of
Errors for a new trial for a misdirection, which was denied.
The court held that if a promissory note be good at its inception,
and effective in the hands of the payee against the maker, it may
be sold by the holder, like any chattel or other chose in action, for
such price or rate of discount as the parties may stipulate for,
without the imputation of usury. But if the note is made only
to raise money upon, and is not to become effective until it is
negotiated, the discounting of it at a greater rate than the lawful
interest is treated as a loan by the indorsee, and will be considered
as prima facie usurious. The distinction, therefore, is with
reference to the question of usury between business and accommo-
dai/ion paper. The court further held, that though the purchaser
of a promissory note may not be entitled to recover from the
party from whom he received it a greater sum than the considera-
tion paid, yet, in an action against a third person who indorsed
the note as security of the maker, the rule of damages is the same
126 LAW OF USURT.
as against the maker, that is, the face of the note and interest.
Church, J., in his opinion, said " The inquiry therefore was, not-
:
withstanding the form of the transaction, whether it was a loan of

money by Baldwin to C. & H. Chapin, or the lona fide purchase
of a business note at a discount. And this was a question of fact
properly submitted to the jury. * * * Lamb, the present
defendant, was no party to the consideration of the contract of
sale he came in only as additional security for the ultimate pay-
;
ment of the note. The jury have found that this note was origin-
ally a valid note, and that Baldwin was the lona fide purchaser
of "We see not, therefore, why he is not entitled to recover its
it.
well from the surety as he would have been if he

full value, as
had sued the makers." All of the judges concurred in this view
of the case {Baldwin v. Zarrvb, 17 Conn. E., 441, 453). And
indeed, this is in full accord with principles laid down by the
Supreme Court of the United States. In a similar case before

that court at an early day, it was declared that there are two car-
dinal rules in the doctrine of usury which must be regarded
as the common place to which all reasoning and adjudication upon
the subject should be referred ; the' first is, that to constitute
usury, theremust be a loan in contemplation by the parties and ;
the second, that a contract which in its inception is unafiected^

by usury can never be invalidated by any subsequent usurious
transaction {^Nichols v. Feersen, 7 Peters' R., 104).
In the State of Yirginia it is held, that where the maker of a
promissory note names no payee, and places it in that condition in
the hands of an agent for negotiation, who sells it at a greater dis-
count than the legal rate of interest to a purchaser who does not
know that thie note is sold for the maker's benefit, and the name
of the purchaser is inserted in the note when it is delivered to
him by the agent, or subsequently, the transaction is not usurious.
So held upon the authority of an early case, which, it was declared,
had settled the law of the State on the subject of usury in the
purchase of negotiable paper although it was conceded that the
;
rule was contrary to decisions in many, if not most of the States.

Eeference was specially made to the prevailing doctrine in the
State of New York, as being adverse to that under the Yirginia
statute as construed by the courts of the latter State {Brmmnd
V. Enders, 18 Oratt. JR., 873).
The case referred to as a controlling authority on the subject

TEANSACTIONS NOT USTTRIOUS. 127
was this: A firm. by the name of Whitworth & Yancy made
their negotiahle promissory note payable to a firm by the name of
Wilson & Orr, for the accommodation of the payees, who put it
into the hands of one Belcher, a broker, for sale on their account,
Belcher sold the note to the plaintiff at a discoimt of three per
cent a month. The plaintiff, at the time he discounted the note,
did not know that it was made for accommodation, nor for whose
benefit it was sold. The note not being paid at maturity, the
plaintiff brought his suit upon it, and the defense of usury was
interposed. The court held that, as the plaintiff did not know
that the note was made for accommodation, or that itwas sold for
the benefit of a party whose name was upon it, he was to be
regarded as a iona fide purchaser from Belcher, the holder and
apparent owner of the note, who did not indorse it, and that the
transaction was, therefore, subsequently the same as the purchase
of a business note. The result of this last conclusion of course
was, that the transaction was not usurious ; and so it was held by
the court ( Whitnoorth v. Adwms, 5 Ramd. B., 333).
Eeverting again to the State of New Tork, and to a case decided
by the present Supreme Court of the State: S. W. were &
commission merchants at Albany, and the defendants resided at
Oswego, and were dealers in wool, sheep-skins and pelts, and had
been in the habit of consigning wool and skins to S. & "W. to be
sold on their account. On the 18th of February, 1840, a contract
was entered into between the parties, by which S. & W., on con-
dition that they should have the selling of all the defendants' wool
and skins, agreed to do it at a commission of five per cent that ;
they would advance, or accept, on two-thirds of the value of the

property put into their hands ; that they would then advance $2,000
in cash for thirty days, at five per cent commission ; that when
drafts should fall due, if not in funds, they should be at liberty to
sell the property at the market price, to meet the same ; or, if
they should advance the money to pay the same, they would charge
five per cent on the advances. The court held that this agreement
was not usurious, per se ; that the transaction was not a locm, to be
repaid in cash, like an ordinary loan, but was an advance made in
the course of legitimate commission business, where extra charges,
on money advanced, were sanctioned by law. Said Gridley, J., in
delivering the opinion of the court: "Ifevertheless, it may it a
cover and disguise, under the name and pretense of such advances,
128 LAW OF USURY.
to get more than seven per cent for a loan of money. In other
words, if this was a fair and iona fide transaction in the commis-
sion business, then wrong cannot be predicated of it but if it was
;
a disguised loan, under the cover and in the name of commissions,

then it is usurious. * * * It is like the case of a loan of money
with the sale of goods, where, on the face of the transaction, it
may be fair and hona fide ; but where it may be shown to be a

disguised loanjby extrinsic evidence. * * * We, therefore,
think was incumbent on the defendants to give some evidence
it
showing that the per centage was remarkably' high, if they desired
the court to hold the transaction usurious. The otvws j>r6bcmd/b
was on them to show that the advances charged as commissions
were loans in disguise. The evidence of usage, if such evidence
existed, should come from the defendants " {Seymour v. Marvin,
11 Barl). R., 80, 83, 85). This case was decided upon authority,
and mainly, perhaps, upon an early case in the old Supreme
Court of the State, wherein it appeared that the. plaintiffs charged
a commission of two and a half per cent on the amount of money
advanced to meet drafts when the defendants failed to send pro-
duce' in time, and interest on the items charged in their account,
from the time they became due. But it was found that the gene-
ral usage was in accordance with this charge. Chief Justice
Spencer, in deliveriag his opinion, says that there is no pretense
for saying that the commission charged by the plaintiffs for accept-
ing and paying the defendants' drafts, when the defendants had
no funds in their hands, was usurious. He puts his decision on the
ground that the commission business was lawful; and that it was
only when an exorbitant charge was made, under the color of
commissions, showing that the party intended, under that device,
to get more than seven per cent for the use of his ilioney, that the
claim of usury could be supported {Trotter v. Curtis, 19 Johns. R.,
161). This case has been usually quoted as a leading authority in
similar caseswhich have arisen since it was reported. The judg-
ment Barbour was afi&rmed by the Court of
in the case in 11th
Appeals {Smithy. Marvin, 27 iT. Y. R., 137).
In a comparatively late case, in the Supreme Court of the State
of New York, the same doctrine has been reaffirmed. party A
held a bond and mortgage to secure $2,000, and, for the considera-
tion of $l,800,-sold and assigned the same, and, in effect, guaran-
teed the collection of the entire face of the bond and mortgage.
";
;
» TRANSACTIONS NOT USURIOUS. 129

with interest. The mortgage was foreclosed^ but there was a defi-
ciency on the sale of the mortgaged premises of some fourteen
hundred dollars ; and an action was brought against the guarantor
to recover this amount, with interest. The court held, that the
contract of the defendant to the plaintiff, although in effect a con-
tract to guarantee the payment of $2^000, with interest, when in
hai only $1,800 was paid by the plaintiff on the assignment of the
mortgage, was not void for usury, the transaction not assuming
the form and character of a loan of money ; but that the liability
of the defendant on his covenant was limited to the sum of money
actually paid to him by the plaintiff for the mortgage, with inte-
rest {Goldsmith v. Brown, 35 Ba/rb. R., 484).
The same general principle seems to govern in ease of exchange
of promissory notes as in that of sales of such instruments. "
In a
case in the old Supreme Court of the State of New York, it
appeared that A. and B. exchanged notes of equal amounts, for the
purpose of raising money, and one procured the note of the other
to be discounted at a premium exceeding the lawful rate of interest.
The note not being paid, the holder brought his action against the
maker, and was permitted to recover the whole amount, with
interest, on the ground that such a transaction is not usurious, and
cannot be set up in bar of a recovery by the purchaser of the note
against the maker. Savage, Ch. J., in giving the opinion of the
court, said :
" The only question is, whether this was a usurious
transaction. According to the uniform decisions of this court, it
clearly is not. The note was given for a valuable consideration

it was an available instrument in the hands of the original payees
there was no usury in its original inception, and, therefore, a pur-
chase of it, or discounting of it, at a sum less than the face, does
not taint the note itself with usury. Usury, to invalidate the
note,,must exist between the original parties to it but when, as ;
between maker and payee, the maker has received value for the
note he gives, it is of no consequence to him what price the holder
gave for it. He had value himself, and, therefore, must pay it
{Rice Mather, 3 Wend, B., 62, 64, 65). And this same doctrine
V.
has been affirmed by the New York Court of Appeals ( Vide Gobb
V. Titus, 10 iT. T. B., 198).
And the Supreme Court of Alabama, in pursuance of the well

recognized rule, has held that where parties make an exchange of
promissory notes, or other securities, for woney, they may stipu^
17
'
'
— ;
130 LAW OF USURY.
late hona fide for an allowance of premium by one to the other

{And/rews v. Jones, 10 Ala. B., 400).
CHAPTER XI.
TEAN8ACTI0N8 NOT USUEIOTJS FOE THE WANT OF THE ELEMENT OF A
LOAN C0NTEACT8 IN THE FOEM OF COMPENSATION FOE SEEVICE^
CHARGES FOE SEASONABLE COMMISSIONS ON MAKING LOAN LOANS ^
UPON CONDITION THAT DEBT OF THIED PEESON BE ASSUMED, OE THAT
A SUBSISTING DEBT OF THE BOEEOWEE BE PAID.
The question of usury is often involved in cases where a commis-

sion has been charged for labor and trouble in procuring a loan of
money for the borrower, instead of nominally including the same
as a provision for the loan. The disposition of the courts in respect
to such transactions will be seen by a reference to some of the cases
which have been held not to be usurious, because not necessarily
involved in a loan. An important case of this description has been
recently decided by the New York Court of Appeals. The facts
were, that one Webb applied to the defendant, at his place of
business at Elmira, to accept for his accommodation, to enable him
to raise money. The defendant wrote his acceptance on the draft
of Webb and delivered it to him. Webb then applied to one
Dewey to indorse the draft and get it discounted for him, and
agreed to pay him fifty dollars for the service. Dewey indorsed
the draft, and then procured another indorser, and procured the
draft to be discounted, and of the avails took out his fifty dollars,
and paid over the balance to Webb. The draft not being paid at
maturity, the defendant was fixed as an indorser, and sued for the
amount of the draft. The defense was usury. The judge at the
circuit instructed the jury to inquire whether the paper was nego-
tiated in the first instance to Dewey, and said if it was, it was
usurious in the hands of the plaintiff as subsequent indorser but, ;
if it was discounted in the first instance by the bank, Dewey act-
ing as agent, and indorsing for Webb's accommodation and pro-

curing Smith's indorsement, the' exacting of fifty dollars for so
doing did not make the draft usurious. The defendant's counsel
excepted, and the jury found for the plaintiff. The judgment was
afBrmed at a General Term of the Supreme Court, and the defendant
appealed to the Cpurt of Appeals, where the judgment was affirmed
TRANSACTIONS NOT XTSUBIOUS. 131
the court holding that the payment of fifty dollars by the drawer
of the bill to an accommodation indorser for his indorsing, pro-
curing another indorser, and obtaining its discount, did not taint
the draft with usury. Denio, J., in delivering the opinion of
the court, said " The evidence is uncontradicted that Dewey acted
:
in what he did Webb's agent, and not as the purchaser or holder

as
of the paper. making title to the bill, when
It is true that, in
pleadings were technical, the plaintiff would have set out an
indorsement and delivery by Webb to Dewey, and by the latter to
the bank, and would thus have stated, in effect, that Dewey was
at one time the holder, and then, inasmuch as he paid fifty dollars
for his connection with its negotiation, it might be said that the
bill was infected, with usury. But, in inquiring at what stage of a
transaction respecting a negotiable bill or note it became operative
as commercial paper, successive indorsements are not necessiirily
regarded as separate transfers of the paper ; but the inquiry is, in
what hands it became available in a sense which would enable
first
that party to maintain an action upon it against the prior parties.

One who indorses for the accommodation of a prior party does not
thereby become the holder of the bill, nor can he maintain an
action upon it until he has. taken it up by paying the amount to a
subsequent purchaser. The fact that the plaintiff placed the pro-
ceeds of the discount to the credit of Dewey was of no materiality,
after itwas shown that the latter acted in procuring the discount
as the agent ofWebb, and not as the owner of the paper.
The defendant's counsel relies upon the case of Steele v. Whipple
(21 Wend., 103), as showing that, under circumstances like those
here disclosed, the paper would be usurious in the hands of the
bank, and must be admitted that the reporter's note favors
it
that conclusion. But on looking into the case, it will be seen that
the note overlooks the true point decided. * * * The princi-
ple reaUy decided has been questioned, if not overturned, by sub-
sequent cases ; but as the point is foreign to the present question,
it is unnecessary to pursue the subject. * * * The court, in
the present case, left it to the jury to say whether Dewey became
the holder of the note by means of the loan to Webb while it was
in his hands, and they found he did not. I doubt whether the
evidence would have justified the submission, but the defendants
have no cause to complain of it. * * * None of the defend-
ants' positions appearing to be well-taken, the judgment of th§
132 LAW OF USURT.
Supreme Court must be affirmed " ( Vcm Duzer v. Howe, 21 N.

T. B., 531, 533, 534, 539).
This" case was followed in a later case in the same court, where
it was ruled that, where the maker of a promissory note pays a
consideration to a party to indorse said note, and to procure its

discount at the bank, such transaction does not constitute a usuri-
ous agreement, and that the bank discounting such note in good
faith can recover the same of the maker thereof {phMham BrniJc
V. JBetts, 3Y Y. B., 356).
JSr.
In the old Supreme Court of the State of Ifew Tork, where a

creditor at the request of the debtor, and upon his express promise
to pay the expenses, took a journey to the residence of the latter
with a view to settle the demand, and afterward included such
expenses in a security taken for the debt, in an action brought
upon the security, the defendant set up as a defense usury, because
the traveling expenses of the plaintiff were included in the bUl;
but the court held that the security was not for that reason usuri-
ous. Brongoh, Ch. J., in delivering the opinion, said :
" We are
referred to WilUa/ms v.House (7 Paige, 581), as an authority to
prove the bill void for usury. But in that case one-half of the
expenses of the creditor's journey were included in the mortgage
when the journey had not been made at the request of the debtor
nor upon any promise to pay the expenses, while here the journey
was made company, and upon its express
at the request of the
undertaking to pay the expenses. The $7.50 might have been
recovered.from the company, although no arrangement in relation
to the original debt had been made. It was so much money paid,
laid out and expended for the company upon request, and was as
much a debt as was the original demand. There was no usury "
{Harger v. McCuUough, 2 JDenid's B., 119, 121, 122).
And in a very late case decided by the New York Court of
Appeals, the principle laid down was even more The emphatic.
action in the Supreme Court was against principal and sureties,
on a promissory note for $412 and interest, payable in one year,
made to the plaintiff for money loaned, but included the sum of
twenty-one dollars and fifty cents reserved as compensation for
the plaintiff's and expenses in collecting the money
services
necessary to complete the amount to be loaned and the plaintiff
;
testified that such services were rendered at the request of the
borrower, and upon his express agreement to pay therefor. The

defense was usury. The evidence being closed, the defendants'
counsel requested the court to direct a verdict for the defendant,
on the ground that, as matter of law, and on the plaintiff 's own
evidence, the defense of usury had been made out, which the court
declined to do, and the defendant excepted. The court charged
the jury that if the excess over seven per cent was taken exclu-
sively for expenditures of time, services and money in obtaining
the money to be loaned to defendant, without any intention to
evade the statute against usury, and if the amount thus taken was
not more than a reasonable charge for such expenditures, and if
they were made at the borrower's request, and on his promise to
pay therefor, then theliote was not usurious; to which the defend-
ant excepted. The defendant requested the court to charge the
jury that it was usury for the plaintiff to take even the actual
expenses in collecting her own money to loan to defendant, when
those expenses brought the sum paid for the loan to more than
seven per cent ; also, that it was usury for the plaintiff to take
anything more than the actual expenses as a personal compensa-
tion for collecting the money also, that if the extra money paid
;
was, in the mind of the plaintiff, ah inducement to make the loan,

it was usury ; each 6f which requests was refused by the court, and
the defendant excepted. The jury found a verdict for the plain-
tiff amount 6f the note, with interest. A motion for a
for the full
new trial was made by the defendant at Special Term, and denied.
The order denying such motion was affirmed at General Term,
and the defendant appealed to the Court of Appeals. The case
- was elaborately argued in the latter court, and the order appealed
from unanimously affirmed. Dwight, J., in delivering the opinion
of the court, said: "We have, then, in brief, the following case
presented : The defendant, Cornell, a stranger to the plaintiff, pro-
cures himself to be introduced to her, finds her sick in bed, and
proposes to borrow $4Q0, offering satisfactory security. The
plaintiff has but about half the desired amount on hand, and, when
it is suggested that she has money due her in a neighboring village,
she admits that she has, but says that it is in good and safe hands,
and that she does not wish to change it; the defendant urges his
pressing necessities, appeals to her to save him from the loss of his
property, which, he says, must ensue

he does not obtain the
if
loan, and offers to compensate for her trouble and expense if she
will go to "Waverly and collect in this money, in order to loan it
134 M''^ oj" usuBT,
to him ; she hesitates to undertake the task on account of her ill
health, but finally consents to make the effort for five per cent on
the amount. She goes to Waverly three times, hiring a convey-
ance each time, sends a messenger twice, collects money from four
different persons, is compelled to resort to borrowing to make up
the full amount, and to apply to several persons before obtaining
the loan, and then finally completed the amount to be loaned to
Cornell. Her health having been injuriously affected by the '
travel and exertion involved in the business, which was more than
she anticipated when she undertook it, she calls Cornell's attention
to the fact, and suggests she ought to -have increased compensation.

Cornell admits the justice of the claim, and consents to increase
the compensation to six per cent. The money was paid, less the
compensation agreed upon ($21.50), and the note is taken for the
full amount, with interest. The plaintiff testifies, under objection,
that her intention, in stipulating for this sum reserved, was to get
compensation for her trouble and expenses- in running about and
collecting and borrowing the money, and that she did not take it
for the use or forbearance oi the money loaned. The court was
asked, upon, this evidence, to direct a verdict for the defendant, on
the ground that, as matter of law, the defense of usury was estab-
lished, and the question is farly presented, by the refusal of the
court, and the several refusals to charge, whether the lender of
money may lawfully receive from the borrower a reasonable com-
pensation, in excess of interest, for services and expenditures in
procuring the money to be loaned, provided the services were per-
formed and the expenditures incurred at the request of the borrower,
and upon his express promise to pay therefor. Upon this question
there can be no doubt. The compensation thus received is
distinct from that agreed to be paid for the loan or forbearance
of the money. The latter is interest, and cannot lawfully
exceed seven per cent ; the former is a stipulated price for work,
labor and services done and performed, and for money paid, laid
out and expended ; as such, it constitutes a distinct demand, which
might be recovered, in a separate action, if not included in the
security taken for the principal debt. Indeed, in this case, there
isno doubt it might have been recovered in an action on the agree-
ment, if the principal debt had not been increased, or if, for any
reason, the defendant had declined to,: accept the loan after the
money had been raised for him by the plaintiff. * * * In the
numerous where the owners of real estate, in growing com-
cases
munities, cut up into lots and offer to purchasers to loan them
it
money to be expended in improvements, the sale of the lots is a

condition of the loan but, even though the price thus obtained
;
for the property is larger than it would have brought but for the
loan thus accompanying it, yet if the transaction be, in good faith,
whatis here described, it would be absurd topronounce it usurious.
So, too, the hiring of services may be made the condition of a loan
for money;as, where some capital,
a clerk or salesman, having
and seeking employment, makes it a condition of loaning his
money that he shall be employed at certain wages. The contract
would not be usurious, unless it should be found that the price put
upon the services was, in fact, intended as a cover for obtaining
unlawful interest for the money loaned. In aU these cases we
arrive at one result, viz., that the character of the transaction
depends upon the intention of the parties, and that is a question
for the jury. The rule applies to the case at bar, and the instruc-
tion given to the jury was strictly correct. The same reasoning,
also, disposes of all the defendant's exceptions to the several refu-
sals of the court to charge as requested. The only one of these
exceptions which it can be necessary to notice further is that to the
refusal of the court to charge '
that if the extra money paid was,
ia the mind of the plaintiff, an inducement to make the loan, it
was usury.' This might seem, at first sight, to be substantially
equivalent to the proposition that if the extra money was received
by the plaintiff, in any manner, as compensation for the loan, then
it was usury. The latter is a correct proposition, and was, in sub-
stance, charged by the court. But the proposition contained in
the request to charge was a different one. According to the testi-
mony of the plaintiff, which the jury seem to have believed, the
extra money
paid was, in one sense, an inducement to make the
loan, and yet was not received, in any measure, as compensation
money. It was an inducement to make the loan,
for the use of the
in that induced the plaintiff to incur the extra trouble and
it
expense without which the loan could not have been made. But,
in this view, it was distinct from the compensation for the loan
itself, -and, hence, was not usury. This request to charge was,
therefore, properly refused. * * * I do not think there was
any error in the rulings of the court, in the admission of evidence.
* * * In this case, to find a verdict for the plaintiff, under the
136 i-^W OF USUBT.
charge of the court, the jury must have found that the sum
reserved hy her, upon the face of the note, was taken exclusively
for the expenditures, of time, services and money in obtaining the
money be loaned to Cornell, without any intent to evade the
to
statute against usury that those expenditures were made at the
;
request of Cornell, andupon his express promise to pay her there-

for; and that the sum reserved was not more than a reasonable
compensation for such expenditures. Such being the findings of
the jury, and no error appearing in the rulings or the charge of
the court, the motion for a new trial was properly denied " {Thurs-
ton V. CorneU, 38 JS'. Y. B., 281, 283-288). These liberal extracts
are made from the opinion in the case of Thurston v. Cornell,
because of the importance of the case, and because certain princi-
plesseem to be carried further, in the decision of the case, than in
any previous cases to be found in the New Tort reports. To be
sure, many interesting items in the opinion are obiter ; but, as
none of the judges manifest any dissent, it is fair to conclude that
they were concurred in, and that they will, most likely, be recog-
nized in future aidjudications. The case itself, however, settles the
principle that a party may lawfully take from the borrower a rea-
sonable compensation, in excess of interest, for services and expen-
ditures in procuring the money to be loaned, when there is no
intent to evade the law; and that it is competent for the lender of
the money to testify as to what his intention was. This doctrine
is more clearly and directly presented in this than in any previous
case ; but it is. nevertheless, quite reasonable, and in accordance

with the general policy of the law.
In a somewhat same court, a similar doc-
earlier case, in the
trine, in one of its aspects, was

down. The action was
laid
brought in the Supreme Court, against the maker and indorser of
a promissory note. The note in suit was bought in renewal of
one for $600, made in July, 1857, by one Burpee and John P.
Alger, and payable to one Clark, or bearer. The circumstances
under which the last mentioned note was given were these In :
July, 185Y, Clark (who resided at Newport, New Hampshire, but

was temporarily staying at Saratoga Springs) was applied to by
Burpee, at the Springs, to lend him $600, which he stated he wanted
to pay a note he was then owing at the savings bank, Springfield,
Vermont. The security he proposed was satisfactory, but Clark
informed him that he had not the money with him; that it was at
TRANSACTIONS NOT- USURIOUS. 137
Newport, in bank and that it would be attended with con-
tlie ;
siderable troubleand expense to go after it. Burpee inquired as to

the probable expense, and was told twenty-five dollars at least, and
he said he would give him (Clark) twenty-five dollars if he would
go and get him the money, and, as he wanted it to pay out at
Springfield, he would meet him (Clark) at Bellows Falls the fol-
lowing Friday, and bring a note with one or more names to it of
persons (among them John P. Alger) that had been suggested as
sureties. Clark promised to go immediately, and did go the next
morning to Newport, and from thence to Bellows Falls on Friday,
and there remained waiting for Burpee until the next morning,
when he went back to Newport, stayed there over Sunday, and
returned to Saratoga on Monday. He paid twenty dollars for the
expenses of the trip. On his return to Saratoga he met Burpee at
John P. Alger's house, and let him have the money, taking a note
therefor of $600, made by Burpee and Alger. After Burpee had
received the money and was about leaving, Clark said to him,
" Burpee, what about the matter of expenses ?" when Bui-pee
replied, "I do not want to give you the money to-day, but will
give you my note on demand, and pay it in a short time." Clark -
wrote a note for twenty-five dollars, and Burpee signed it. The
defense was usury, and on these facts the Supreme Court adjudged
that the plaintiff had himself shown the note to be usurious, and
accordingly nonsuited the plaintiff. The Court of Appeals held
this to be a plain error. Wright, J., who delivered the opinion,
said :
" The evidence tended to show that the twenty-five dollar
note (whici, was claimed in the pleading, was without any legal
it
consideration, and rendered the $600 note void for usury) was
given to repay Clark for trouble and expense incurred by him, at
the request of Burpee, the borrower, in going to Newport for the
money, and that the amount of the note was only two or three
dollars more than the actual expenses of the trip. If this were so,
there was no usury. But, manifestly, the ease did not disclose a
transaction usurious per se. Whether or not the trip to Newport
for thê money was intended was a matter for
as a cover for usury,
the consideration of the jury. If the jury believed that it was
undertaken in good faith, at Burpee's special request, and upon his
promise to reimburse for the trouble and expense of the journey,
then the taking of the twenty-five dollar note did not render the
transaction usurious. Even when the lender, without any special
18
s
138 LAW OF USURY.
agreement with the borrower, in addition to lawful interest, takes

a commission for troubleand expense necessarily incurred in and
about the business of the loan, the transaction would be supported,
provided such commission was not intended as a device to cover a
usurious loan " {Eaton v. Alger, 2 Keyei B., 41, 46, 47 and vide;
Flint V. Sohomberg, 1 Hilton^s B., 532). The Superior Court of

the city of New York has recently held that it is not usury for a
lender of money on bond and mortgage, in good faith, and not as
a cover, to take from the borrower the necessary disbursements for
Searching the title to the premises mortgaged.
The facts were these : Eeed made a mortgage to Wolcott, to be
used by the latter to borrow money for the former; Wolcott
transferred the mortgage to Eldridge, and received the full price
thereof as a loan upon the security of the same, which money* he
delivered to Eeed, less a certain sum retained by him for his ser-
vices and expenses incurred in searching titles. The court held
that the mortgage had no inception in the hands of Wolcott, and
that a retention by him of such sum for services did not make the
loan or mortgage usurious in the hands of Eldridge ; and it was
declared that if the notes and mortgage in suit were, as was
claimed by the plaintiff, not of a transaction virtually between
Reed, the defendant, and Eldridge, the discounter of the notes,
through Wolcott, the agent or middle man, in order to raise money
to take up other notes, or for any other purpose, then, no matter
how much money Wolcott might have stipulated for or received,
it would not be usury as against the party taking the notes and
mortgage and advancing the money thereon, unless he was also a
party to the usurious contract. This was stated as a familiar prin-
ciple, and well settled by authority {Eldridge v. Reed, 2 Sweeny''
B., 155, 160).

The same general doctrine of these New York cases has long
been recognized in England. Thus, an indenture, assigning to the
plaintiffs a contract for the purchase of timber, upon certain trusts
for securing to themselves out of the proceeds therepayment of
the purchase-money advanced by them, and also of a certain bal-
ance before due to them, together with interest thereon, at five
per cent, up. to the time of payment; and also the sum of £200,
as compensation for the trouble that they might be put to ; and
which they might incur on account of

also all costs, charges, etc.,
the premises, was held by the English King's Bench not to be a
TRANSACTIONS NOT USURIOUS. ^ 139
usurious agreement npoH the face of it ; that'it was not necessarily

to be intended as a colorable reservation of further interest beyond
the legal rate, but as a compensation for trouble, etc. ; neither was
it so excessive as to be intended usurious upon that account {Palmer
y. Baker, 1 Momle dh Selwyrt^s E., 56).
A similar rule was laid down in the English Court of Chancery.
A motion was made for an injunction to restrain the sale of a cargo
in the London docks, and an objection was taken to a claim of lien
forcommission upon a transaction which, by the accounts that
were produced, appeared to be of this nature. Hanson, the per-
son making the claim of crommission, having advanced money
upon the terms of receiving interest at five per cent, took bills upon
Hamburgh, which bills he sent there for the purpose of procuring
acceptance and payment, and a remittance of the amount. The
commission was charged upon that transaction, and it vfas con-
tended, in support of the motion, that it was usurious. The motion
was denied, on the ground that a reasonable commission, beyond
legal interest, for extra incidental charges and the like, is not usu-
rious. The lord chancellor said :
" I take the facts of this case, as
far as I can understand them from the accounts that have been
handed up, to stand thus : Hanson advanced money to these parties
upon, the terms of receiving interest; desiring them, if they had
billsupon Hamburgh, to put them into his hands for the purpose
of sending them there to procure acceptance and payment, in order
to bring himself home, taking a reasonable commission for his
trouble in doing so. That, according to modern doctrine, is not
usurious therefore, I cannot make the order prayed upon this
;
motion " {Eaynes v. Fry, 15 Vesey''s E., 120, 121 and vide, also, ;
Burden v. Pa/rry, 2 Term E., 52).

And, in the State of Connecticut, similar decisions have been
made. In a comparatively late case, the Supreme Court of Errors
of that State went the full length of the New York cases. The
action was upon promissory notes indorsed by the defendant and ;
the defense was usury. It appeared that the maker of the notes
made an arrangement with the plaintifE to take the notes and get
them discounted for him, for which he agreed to pay him a reason-
able compensation for his trouble and expense. He took the notes
and tried to get them discounted, but could not whereupon he ;
got his own note discounted by pledging other securities, and

received Uhe money and took the notes and, for his trouble and
;
140 LAW OF USUBT,
expenses in procuring the money, the maker of the notes agreed to

pay him fifty dollars, which was no more than a reasonahle com-
pensation for his trouble and expenses. The arrangement was
made in New York. The defendant requested the court to charge
the jury that if the extra sura was paid to the plaintifi" to lend the
money or to procure a loan, if he lent the money himself and
received more than seven per cent for it, the loan was usurious and
void. The court charged the jury as follows-; " The notes in ques-
tion are governed by the law of itfew York, which makes all secu-
rities void when more than seven per cent per annum is taken for
the loan of money. It is essential, to. constitute the transaction

usurious, that there should have been a corrupt agreement between
the parties, with an intent to avoid the statute. The test of such
a transaction is, whether it is merely a loan of money, whatever
may be the form of the contract; for, when the substance of
the transaction is a loan of money, no artifice, device or
shift will evade the statute. Promissory notes are the subject of
sale, like personal chattels; but if the note is made only to raise
money, and is not to become effective until it is negotiated, a sale
for less than its apparent value will be prima facie usurious, and
it win devolve on the purchaser to show that the transaction is
not tainted with usury. A charge of commission beyond the legal

rate of interest, for the trouble of discounting a note or procuring
a loan of money, is not usury, provided it be a fair and reasonable
compensation ; but if such compensation should be unreasonable
and extravagant, it will furnish a presumption that the transaction
is usurious and whether the transaction be of this character or
;
not is a question of fact for the determination of the jury." The

jury returned a verdict for the plaintiff, and the defendant moved
for a new trial, for error in the charge of the court. After full
consideration the motion for a new trial was denied. Hinman,

Gh. J., in giving the opinion of the court, said :
" The only ques-
upon that part of the charge in which the
tion in this case arises
jury were told that a charge of commission beyond the legal rate
of interest, for the trouble of discounting a note or procuring a
loan, was not usury. The facts to which the charge applied are
very similar to the facts in the case of Hutchinson v. Horner (2
Conn., 341), where the same doctrine was expressly sanctioned by
the court. And that such is the law of Connecticut is admitted
by counsel, as it certainly ought to be after this express 'decision.
TRANSACTIONS NOT USTTBIOTTS. 141
subsequently sanctioned and uniformly acted upon {De Forest v.
St/rong, 8 Conn., 513 ; Becknoith v. Windsor Mawtjufaot/wrvng Co.,
4: ih., 604). But as this was a New York transaction, it is claimed
that the same rule does not exist there and the question arises,
;
therefore, any difference in this respect between our

whether there is
own laws and the laws of New York. The general principles as to
what constitutes usury are the same in both States, and also in Eng-
land, though the rate of interest is different. Hence the English
cases are always cited and relied upon in New York as well as with
us ; and we suppose it to be very well under the English
settled thajt
statutes it is lawful to take the customary commission or exchange
on bills or notes, and reasonable incidental expenses,- over and
above the interest. * * * Thefactôf this case bring it clearly
within this principle. The plaintiff did not charge the commis-
sion for the loan as made by himself indeed, it was not, when the
;
service was rendered, contemplated that he was to loan the money

at all. He came to Connecticut for the purpose of raising the
money from others on the defendant's paper, but, finding that he
could not do this, he determined to raise the money himself. Now,
why should he not be paid for the service rendered at the defend-
ant's request, and for his expenses while engaged in it ? " {Bea-
dle V. Munson., 30 Corm. R., 175, 178, 179).
A similar doctrine has been recently declared by the Supreme
Court of Illinois, in a case in which it was held that a bill of
exchange stipulating for the payment of " costs of collecting,

including attorney'sfees, " is not usurious {ITie Fvrst National
Bcmk of Ma/rtinsville v. Canatsey, 34 III. R., 149). And the.

same doctrine has often been recognized by the Supreme Court of
Indiana ( Vide Garnbril v. Doe, 8 Blackf. R., 140 BiUiMgsfyy v. ;
Deem, 1 Ind. R., 331 8rmth v. Silvers, 32 id., 321 Smith v.

; ;
JTie Muncie National BamJc, 29 id., 158).

Akin to this doctrine, the Court of Appeals of the State of
New York have recently held, that the fact that upon a loaln of
money the lender exacts, as a condition of his. making the loan,
that the borrower should secure to him the payment of a subsisting
and genuine debt due him from a third person does not, per se,
render the loan usurious. The action in the court below involved,
the validity of certain promissory notes given upon a loan of
money, «which included not only the amount of the money loaned,
but $483.02 claimed by the lender to be due him from a third
142 LAW OF USUItT.
person ; and it appeared in evidence that the lender made it a

condition of the loan that the borrower would undertake to pay
the indebtedness of such third person, and include the amount in
the securities, and the borrower assented to the arrangement. The
transaction was held usurious and void by the referee before whom
the trial was had an appeal was taken to the General Term of
;
the Supreme Court, where the judgment of the referee was

reversed and an appeal was taken to the Court of Appeals and
;
the judgment of reversal was affirmed. Lott, J., in his opinion

said " Assuming that the' notes of the defendant were given to
:
the plaintiff and accepted by him as a loan of money, the transac-

tion as found by the referee cannot be considered usurious. He
has fully set forth the facts on which he found, as a matter of law,
'
that said loan of money and said notes given therefor, and the
said mortgage, were usurious and void.' They are substantially that
the defendants, on an application to them by the plaintiff for a loan
of money to discharge an indebtedness by him to divers persons,
including a debt to themselves, consented to lend the money
wanted, among other terms, ' upon the' farther condition that the
said plaintiff would in consideration of such loan undertake to pay,
to the said defendants the sum of $483.02, claimed by the said
defendants to be due from Henry Jones to them, the said defend-
ants,' the particulars of whiqh claim were set forth, and then and
'
there makes his promissory note for said amount,' and secures the
same with the notes to be given for the amount of the said indebt-
edness by the said mortgage^ that the plaintiff acceded to the said
terms and made the notes and executed the mortgage which he
seeks to. cancel. He' does not find as a fact", or set forth any cir-
cumstances warranting or tending to warrant the conclusion, that
the debt of Jones was not due, or that the assumption of it was
demanded or insisted on in any way, as interest for the loan, or
with the intention of taking usury, or as a shift or device to cover
it. The fact, and the only fact on which, as a matter of law,' he
'
decides the loan to be usurious and void- is, that the defendants
refused to make the loan asked by the plaintiff unless the pay-
ment of the Jones debt was assumed by him and secured by the
mortgage. Such a refusal did not, per se, make the transaction
usurious,and that fact being as before stated the only one found,
no other will be presumed to sustain a conclusion that the agree-
ment was corrupt and void. It must be considered the settled
TRANSACTIONS NOT USUBIOUS. 143
rule of law in this State, that the arms is iipon the party seeking
to avoid ah. agreement as usurious, not merely to establish a usuri-
ous intent, but to prove from which that intent is to be
facts
deduced" {Valentine y. Conner, 40 JUT. Y. ^.,248,252,253).

And the Supreme Court of the State had previously held, that an
agreement by a borrower to pay a subsisting debt of his own in
consideration of a new credit is not usurious, if the promise is to
pay only the amount actually due on the old debt, and the amount
of the loan with lawful interest {Ma/rsh v. Howe, 36 Ba/rb. Hi, 649).
The Court of Appeals of the State of Ilêw York have just
held, in a case not yet reported (August, 1872), that a loan is not
necessarily usurious by reason of its constituting part of an agree-
ment between the parties, where, irrespective of the loan, both
parties are desirous of entering into the contract for their mutual
advantage. And further, that the mere fact that as part of the
arrangement a loan made by one to the other at the legal rate
is
of interest to enable him to perform his part, does not present a

case of usury, though the loan would not have been made except
as a part of the contract, or even though the contract would not
have been made without the loan. And it was also held, that the
mere fact that a loan of money or interest is the consideration for
another contract, is not in all cases conclusive evidence of usury.
But it was said that if by the collateral contract some benefit is
secured to the lender, for which the borrower does not receive an
equivalent, and which the lender would not have obtained except
for the loan, and which is intended as an additional compensation
for the loan, it is usury {Gla/rk v. Sheehcm, 6 Alh. L. Jour.,
126).
CHAPTER XII.
rSAlf&ACTIONS NOT TTSTTEIOTIS — COMPENSATION TAKEN ON ACCOUNT OF

EXCHANGE — MAKING DEPOSITS IN CONSIDEEATION OP A LOAN
TAKING INTEEEST IN ADVANCE.
Cases involving similar principles to those considered in the

preceding chapter are those in which charges are made over and
above legal interest for exchange, and the universally settled rule of
law seems to be that a charge for exchange, unless used as a cover
for usury, is legal and not usurious. A
few only of tlie leading'
144 I>-AW OF VSVET;
cases holding this doctrine, and wherein the trail sactions were
decided not to be tainted with usury, will be referred to. Several
cases of this nature have been before the Supreme Court of the
United which the decision was in favor of the legality
States, in
of the transaction. For example, in one case, a banking institu-
tion, having power to deal in exchange, took a mortgage to secure
the payment of a loan to the mortgagor, in which was reserved a
certain amount over and above legal interest, alleged to be accord-
ing to the usual and customary prices of exchange between Cin-
cinnati, where the bills were drawn, and New Orleans, where they
were payable at the times they were discounted, although it was
conceded that the rates were higher than were charged- on sight
bills. The Circuit Court of the United States for the district of
Ohio, in which the action was brought, held that the transaction
was not usurious, and declared that it, was not usury in a bank
which has power by its charter to deal in exchange to charge the
market rates of exchange upon time bills, and an appeal was taken
to the Supreme Court of the United States, where the decree of the
Circuit Court was affirmed. Mr. Justice Curtis, in delivering the
opinion of the court, said " The power of the banking corpora
:
tions to deal in exchange is not controverted. There is no usury

on the face of any one of these transactions. It is incumbent on
the party who charges usury to prove it and where it is alleged
;
to consist in taking excessive rates of exchange, or in resorting to

the form of a bill of exchange in order to keep out of sight a
usurious compensation for the simple loan of money, those facts
must be proved. * * * The answer of each bank denies such
intent, and avei's that the exchange charged in each case was the
customary and regular rate at the time of the discount of such
bill. There is no evidence to prove the contrary. * * * The
counsel for the appellants urged that the rates were higher than were
charged on sight bills. But these were time bills, and it is no proof of
usury that the banks did not take the market rates on sight bills, which
they did not discount, if they took only the market rates on those
they did discount. It was also insisted that the banks did not buy
those bills, but were the first takers, fpr loans of money made to
the drawers. But we are unable to perceive how the fact that the
banks were the firs't takers can be of any importance in this case,
nor do we deem it material that the bills were discounted for the
drawers. The reason why the addition of the current rate of
exchange to the legal rate of interest does not constitute usury, is
that the former is a just and lawful compensation for receiving

payment at a place where the money is expected to be less valua-
ble than at the place where it is advanced and lent and this rea- ;
son exists when the lender discounts the drawer's bill as well as
when he buys a bill in the market of the payee. In neither case
is it usury to take the regular and customary compensation for the
loss in value by change of place of payment {BuoMiighwm v.
McLean, 13 How. U. S. R., 151, ITl, 1T2).
The whole question was examined in an earlier case in this same
court, and the same rules were laid down. The action was brought
in the Circuit Court of the United States for the southern district
of Alabama, to recover the amount of a bill of exchange which
was taken, in New York, in payment of a debt due on a protested
bill from one of the parties to the protested bill. The bill was
drawn on parties residing in the State of Alabama, and payable
and negotiable at the Bank of Mobile sixty days after date. The
exchange between Mobile and New York was stated to be ten per
cent, and was added to the bill, and the damages ia the protested
bill were also added. The bill was sent to Mobile and placed to
the credit of the drawees by the indorser, who received it before
it came to maturity. It was afterward protested for non-payment.
The defendants alleged usury in the bill the rate of exchange ;
allowed in the bill, being ten per cent, was proven, and it being
alleged that the highest rate of exchange in Mobile did not exceed
fiye per cent. The defendant proved by one witness that the
exchange between New York and Mobile at the time in question
was from five to seven per cent, and by another that it was from
three to five per cent three for short and five for long paper.
;
The plaintiff offered to prove that there was no fixed rate of

exchange between Mobile and New York ; that it varied from one
to twenty per cent, according to the solvency, punctuality and risk
of the parties ; that exchange was ever fluctuating, and was high
or low, as the risk was great or small. The court refused to accept
this testimony, and the plaintiff excepted. The
plaintiff asked the
court to instruct the jury that if they were satisfied that the excess
over legal interest retained in this bill was taken and contracted
for innocently by the parties, without intending to violate the
laws against usury, they might find for the plaintiff. The court
refused to give the instruction and the plaintiff excepted, Other
19
146 L-A.W OF USURY.
instructions were asked by tlie plaintiff and refiised, which it is
Txnnecessary to note, because not material to the question under

consideration.
Upon the whole case the court charged the jury that if they
believed from the evidence that by the usages of trade between
New Tork and Mobile there was an established rate of exchange
between those places, the drawers and drawees of the bill of
exchange here sued on had a right to contract for such rates of
exchange and that even a higher rate to a small amount, if, under
;
the circumstances, it did not appear to have been intended to

evade the statute against usury, might be allowed by them ; but
if they believed that no such usage existed, the parties had no
right to contract for more than the actual expense of transporta-
tion of specie from one place to the other, including interest, insu-
rance,and such reasonable variations therefrom, as above stated;
and further, if they believed from the evidence that the drawees
of the bill of exchange contracted with the drawers in the State of
New Tork, at the time the bill was drawn, for a greater rate of
interest than seven per centum per annum for the forbearance of
the payment of the sum of money specified in the bill, although
it may have been taken in the name of exchange, the contract was
usurious and they ought to find for the defendant ; otherwise for
the plaintiff; to which charge the plaintifi" excepted. The jury found
a verdict for the defendant, and the plaintiff brought error. The
case was ably argued in the Supreme Court of the United States,
and due deliberation, the judgment of the Circuit Court was
after
reversed, and it was held that, although the transaction, as exhibited,
appeared, on the face of the account for which the bill was drawn, to
be free from the taint of usury, yet if the ten per centum charged
as exchange, or any part of it, was intended as a cover for usuri-
ous interest, the form in, which it' was done, and the name under
which it was taken, will not protect the bill from the consequences
of usury and, if this fact was established, it must be dealt with
;
in the same manner as if the usury had been expressly mentioned

in the biU itself. But whether the charge of ten per centum for
exchange between New York and Mobile was intended as a cover
for usury, was a question exclusively for the jury. It was a ques-
tion of intention; and, in order to enable the jury to decide
whether usury was concealed under the name of exchange, evi-
dence on both sides ought to have been admitted which tended tC
show the usual rate of exchange between New York and Mobile
when the bill was negotiated. But there was no rule of law fixing
the rate which may be charged for exchange it did not depend ;
on the cost of transporting specie from one place to another,

although the price of exchange was no doubt influenced by it.
Mr. Chief Justice Taney, who delivered the opinion of the court,
said " In fine, if the parties intended to allow no more than a
:
fair rate of exchange, testing it by the market price of good bills
of this description,it was not usury, and the plaintiff is entitled to
recover ; on the contrary, more was intended to be taken, it

if,
was usury, and the plaintiff is not entitled to recover." And

because the Circuit Court had excluded evidence offered by the
plaintiff pertinent to this issue, and the case had not been sub-
mitted to the jury in strict accordance with this view, the judg-
ment of the Circuit Court was reversed {Andrews v. Pond, 13
Peters' P., 65, 80).
The question has frequently been before the courts of the State
of JSTew York, and the principle is there weU settled, that the
including a premium in excess of interest in a contract, as the dif-
ference in the rate of exchange between the place where the con-
tract is entered into and the place of payment, does not render the
transaction, êr se, usurious. One of the earliest eases of this
desgription arose in the old Supreme Court, wherein it appeared
that the actionwas against the defendant as the indorser of a pro-
missory note which was given for the balance of a previous note
held by the plaintiff against one Petrie; which last mentioned
note was given under the following circumstances On the 12th :
of June, 1827, Petrie purchased of the plaintiff, at New York,

where he carried on the business of a merchant, a bill of goods
amounting to $308.77, for which he gave his note, payable in
six months, 'including $10.82, the interest on the amount of the
bill of goods. On the 12th March, 1828, the note remained unpaid,
and the true amount due thereon at that date, including interest,
was $325.18. Interest was then cast on that sum for sixty days,
as the one-sixth of a year, and the amount thereof, together vsdth
$3.03, the difference of excfumge between TJtica and Npw York
(being one per cent upon the whole amount), added to $325.18,
made the sum of $332.28. Petrie paid twenty-eight cents, and
gave his note for $332, payable at Utica, for his accommodation, he
residing at Iîttle Falls, in the vicinity of Utica. The defendant,
;
148 LAW OF USURY.
who was an accommodation indorser, insisted that the note of $332

was void for usury ; first, on the ground that the interest included
in it had been cast for sixty days, as the one-sixth of a yeair ; and,
secondly, that it included one per cent, the difference of exchange,

and that the note in question, having been given for the balance of
the note of $332, was equally tainted with usury. No question
was made on the trial but that one per cent was the true difference
in the rate of exchange between Utica and New York. The
defendant requested the circuit judge to charge the jury that the
note was void for usury, which he refused to do, and charged that
the plaintiff was entitled to recover. The jury found for the
plaintiff the full amount of the note, and the defendant moved
the Supreme Court for a new trial, which was denied. Savage,
Ch. J., delivered the opinion of this court, and said " There was
:
no excess of interest included in the note of $332. The interest

of $325.18, for sixty days, and three days of grace, which the
plaintiff had a right to charge, amounted to $3.92, making the
principal and interest $329.10, to which add one per cent, the
rate of exchange agreed on, and the sum of $332.39 is given,
from which deduct twenty-eight cents, the amount paid by Petrie,
and the balance is $332.11, a sum exceeding the amount of the
note, which, therefore, was not usurious as including a sum of
interest greater than what is allowed by law. JSTor was the iaclu-
ding the rate of exchange in the note, per se, evidence of usury.
The payees resided in New
York, the maker at Little Falls, and
for his accommodation the payees agreed to accept the note pay-
able at Utica, near the residence of the maker. For this accom-
modation the maker agreed to pay, and such an agreement is valid
and upon sufficient consideration. Such an agreement may be a
shift to cover usury, but there is nothing to warrant such a con-
clusion in this case " {Merritt v. Benton, 10 Wend. JR., 116, 117).
It will be observed that two principles are laid down in this case
(1) that casting interest on an amount for sixty days, as one-sixth
of a year, or discounting a sixty days' promissory note, is not
usury ; and (2) the including of a reasonable charge in a note as
the difference in the rate of exchange between the place where
the payee resides and the place of payment is not, per se, evidence
pf usury. And this case has been uniformly recognized as autho
pity since it was decided.
A very interesting case, involving similar questions, was decided
,
by the Court of Appeals of the State of New York, -within

the last few years, and the samemay be referred to as a safe crite-
rion by which such transactions may be tested. The action was
tried in the Superior Court of the city of Buffalo, and was upon
a promissory note for $2,500, made by one of the defendants and
indorsed by the other, at Buffalo, payable in the city of New York
in seventy-five days from its date. The note was discounted at
the plaintiff's bank in Buffalo for the benefit of the maker, the
other defendant having indorsed for his accommodation. The
defendantsj in their answer, set forth, and they offered to prove,
on the trial, that when the note was discounted the exchange
between the cities of New York and Buffalo was, and had been
for a longtime previous, one-half of one per cent in favor of the
former place, and that both of the parties expected and believed it
would continue so to be until the maturity of the obligation ; that
both the maker and indorser resided at Buffalo ; that they had no
funds or business in New- York ; that they had no expectation of
funds there to meet the note when due, except as they should pro-
vide the same at Buffalo for the particular purpose of pajang the
ntote ; that those facts were known to the plaintiff's bank ; and,
finally, that the transaction was entered into with the design and
for the purpose, entertained by both parties,' of enabling the bank
to realize, in addition to the legal rate of discoimt, the one-half
per cent exchange on the sum of $2,500. The evidence offered
was excluded by the court, and the defendants excepted. The
jury found a verdict for the on which the court, at Gene-
plaintiff,
ral Term, ordered a judgment and it was entered

for the plaintiff,
accordingly. The defendants appealed to the Court of Appeals,
where the judgment was afBrmed. Comstock, J., in his opinion,
said " The exchange between different countries is affected by
:
the comparative weight and purity of the coin in each. It is also

liable to sudden and considerable fluctuations in consequence of
the revulsions in foreign trade and commerce and it is more or ;
less influenced by political and other events, which can have little
or no effect upon the course of trade and exchange between dif-

ferent points within the sovereignty. The law-merchant, there-
fore, in adjusting the rights and obligations of parties to foreign
bills, takes notice of the prevailing rate of exchange, and allows it
to be estimated as a part of the indemnity which is due for the

non-performance of the contract. But the same causes do not
150 Ii^W OF VSUBT.
operate upon the internal commerce of a State. The standards of

currency are the same at all places within its boundaries ; inter-
course and trade are uninterrupted, and a single jurisprudence
pervades every part of it. It is true that slight irregularities in
trade will occur, and that a small rate of exchange may arise, in
the course of dealing, between different places. But these are

facts unacknowledged in the system of commercial law. They
suggest no principle, and they have never afforded the foundation
for a legal conclusion. In the light of these principles, the ques-
tion of usury involved in the present case is capable, I think, of a
clear and satisfactory determination. The note in controversy
was made and indorsed by residents of this State, and was payable
within this State. It was strictly an inland or domestic obligation.
If the note had been paid at maturity in the city of New York,
and the rate of exchange had continued to be one-half of one per
cent in favor of that place, the bank at Buffalo, which discounted
and stiU owned it, would have realized an. advantage to that extent,
because the fund in New Tork could have been sold at Buffalo, by
a draft thereon, at a corresponding premium. Such would have
been the practical result, if the maker of the note had paid it at
the place specified when it became due. But there is nothing in
the law of the contract which secured that result, because the rule
of damages, in an action brought upon the dishonor of the note,
allows no indemnity for the loss of exchange. * * * A pro-
missory note may be given for money lent, or for goods purchased,
payable at a place within the State to which the rate of exchange
is favorable. In either case, the construction and effect of the
instrument are the same. The measure of damages, and the legal
extent of the obligation, are the face of the note and lawful inte-
rest. In the one case no question of usury can arise, because
there isno loan of money. In the other there is no usury, because,
in judgment. of law, there is no agreement to pay more than the
legal interest. * * * Upon the whole, we are of the opinion
that the facts alleged in the answer had no tendency to establish
the defense of usury, and, therefore, that the evidence was pro-
perly excluded." Allen, J., who also delivered a wellrwritten
opinion in the case, said " The rate of exchange upon inland biUs
:
is not fixed by law, as in the case of foreign bills. It depends

upon the changes and fiuctuations of trade. Though probable, it
is not absolutely certain, that the difference in favor of New York

TRANSACTIONS NOT USDRIOUS. 151
*
would continue to be, as it then was, at one-half per cent. * *
It is ©f no consequence to say that making the note payable in
New York imposed upon the defendants the additional burden and
expense of transmitting funds there to meet the note at maturity.
The place of payment is always as much a matter of agreement
and regulation between the parties as the time. It is frequently a
matter of accommodation to the makerpay at a distant place,

to
But suppose, in this case, it was not for the accommodation of the
defendants, and they did not pay at maturity, what amount could
have been reserved, or what amount is actually to be reserved, if
the judgment is to be affirmed ? Simply the face of the note and
interest and a tender of that
; sum before suit brought would have
extinguished the note. * * * To constitute usury in this case,
we would be in favor of
are to assume that the rate of discount
New York at the time the note became due which, in our judg-
;,
ment, we cannot do" {Oliver Lee c& Oo.^s Bank v. Walbridge, 19
]Sr.Y. B., 134, 137-139, 142, 144, 146).

In a somewhat earlier case, decided by the same court, a similar
question was involved as that in the case of the Oli/ver Lee Go.^s &
BamJc V. WaJhridge, and the was the same. The action was
resiilt
upon a promissory note, which was given on the settlement and

consolidation of several other notes against the defendants, held
by the Delaware Bank, had discounted
in Delhi, which the bank
for the benefit of a firm by the name of Stewart & Frazier, who
were doing business in the city of New York. Most of the notes,
though not all, were made payable at the American Exchange
Bank in the city of New York. The Delaware Bank gave drafts
on its correspondents in the city for a portion of the avails of the
notes at the time of making the discounts, and charged one-half of
one per cent on such drafts, for the difference of exchange in favor
of the city. The testimony was conflicting as to whether or not
it was made a condition by the Delaware Bank to the discounting
of the notes for Stewart that they were to be made payable at a

city bank, and that Stewart should receive the avails in drafts of
the Delaware Bank on some bank in the city, at one-half of one
per cent premium thereon. The defendants insisted that the seve-
ral notes which formed the consideration of the note in suit, and
also that note, were, and each of them was, usurious and void.
The court, at the circuit, decided otherwise, and directed a verdict
in favor of the plaintiff, to which the defendants excepted. The
: '
152 L-AW OF USURT.
judgment was affirmed by the Supreme Court at General Term,

and the defendants appealed to the Court of Appeals, by which
court the said judgment was also affirmed the court holding that
;
the transaction was not usurious. Denio, J., in his opinion, said
" At the time the paper in question was discounted by the Dela-
ware Bant, the difference of exchange was against Delaware
county. How it would be when the discounted paper should
mature, the parties could not certainly know, though, from our
knowledge of the course of trade, we may suppose that but little
doubt could be entertained upon that point still, no one could
;
legally know that the funds in New York would then be worth
more than at Delhi. Again, suppose the discounted paper had
been payable at Delhi in that case the law would be plain, that
;
the payment of the proceeds in drafts chai'ging the premium would

not be usury. * * * These considerations have led me to the
conclusion that the transaction was not usurious on account of the
payment of this premium of exchange. We do not intend to say
what the law would be in a case where the lender should make it
a condition of the loan that the borrower should make his paper
payable in New York, and should, upon the discount of such paper,
insistupon paying the proceeds in drafts, charging a premium of
exchange. There is no evidence that such a condition was insisted
upon in respect to this paper " {Marvme v. Hymers, 12 N. Y. JS.,
223, 232, 233). All that this case really settles is, that where a
country bank discounts a note payable in the city of New York,
and, at the request of the person for whose account it was dis-
,
counted, pays him the proceeds in sight drafts upon its correspond-
ents in New York, charging him therefor the current premium on
exchange, the transaction is not usurious. This doctrine had been
substantially held by the Supreme Court of the State some years
before the case of Marvine v> Symers was decided ( Vide The
Cayuga County Sank v. Hunt, 2 MilVs JS., 635 ; and vide Pwt-
lamd Bamk v. Storer, 7 Mass. R., 433). And a similar doctrine
was reiterated by the New York Court of Appeals at the very next
term after the decision of the case of OUver Lee dh Co.'s Bank, v.
Walbridge, in a case wherein it appeared that a bank in Buffalo
discounted a note payable in the city of New York, and, in dis-
counting it, sold to the parties getting the note discounted its
drafts on New York for the amount, and received a premium,
thereon of half per cent as exchange. The Superior Court of
;
Buffalo held that the transaction was not usurious, and gave judg-
ment in favor of the plaintiff for the amount of the note, and the
defendants appealed to the Court of Appeals. The latter court
declared that the question of usury, as presented by the case, had
been disposed of by previous cases decided by the court, and, there-
fore, affirmed the judgment of the court below ; and it was said
that the court had had occasion before to consider the point, and
had deliberately decided that it is not usnry, on discounting com-
mercial paper, to take interest upon the full amount for which it
was made, when it has not longer to run to maturity than is usual
with paper discounted by bankers ; and that the exacting of a pre-
mium of exchange on the drafts with which the proceeds of the
discounted paper were paid was not usurioxis {International Bank
•T. Bradley, 19 N'. Y. R., 245). And in a later case the same
court laid down the general rule that usury cannot be predicated
of the advantage obtained by the lender by means of the difference
of exchange between the place of the loan and the place of the
payment, when both places are within this State. It appeared
that the plaintiff required, as a condition of the loan, that the
note on which the action was brought should be made payable at
Albany, where the maker had not and did not expect to have any
funds, instead of Rochester, where he resided, and where the dis-
counting bank was located, the motive for the requirement being
to give the bank the which exchange was
difference of exchange,
Albany
then, and generally was, half of one per cent in favor of
. but the court held that the case of Olvoer Lee Go.'s Bank v. S
Waliridge (19 If. Y. R., 134), was entirely decisive of the case
then before them, and gave judgment accordingly {Eagle Bank
of Rochester v. Rigney, 33 N. Y. R., 613 ; and vide Gvyler v.
Samford, 13 Bwrl. R., 339).
To the same import may be cited amother late case in the
Supreme Court of the State of New York, in which Johnson, J.,
in giving the opinion of the court, said :

" It seems to be well
settled by several decisions in the Court of Appeals that the mere
fact that a note has been discounted in the country, made payable
in the city of New York, and a portion or the whole of the pro-
ceeds paid tO' the borrower in a draft upon the city, at the usual
price or charge for city drafts^ does not render such note usurious
{Ma/rvine v. Mymers,. 12 W. Y. R., 225 ; Oliver Lee cfe Co.h
Bank v. Waibridge, 19 «J. , 134; International Bcmk v. Bradley,
20
154 J^/Aw OF vsusr.
Ih., 245). Perhaps it migit be held to be so, if both the place of

payment of the note and the purchase of the draft were made thet
condition of the loan. But nothing of that kind appears here,
even conceding that the note was not in fact discounted until the
borrower had received the avails. For aught that appears in the
finding of facts', the borrower desired the drafts for his own con-
venience. was otherwise, it was for the defendant
If the fact
alleging usury to prove it, and have the fact inserted in the find-
ing of facts " ( Union JBamk of JSochester v. Oregory, 46 Ba/rb.
B., 98, 102). And in the old Supreme Court of the State of New
York, in an action by a country bank against the indorser of a bill
of exchange, mentioning no place of payment, it appeared that the
bill was discounted by the plaintiffs for the acceptors that the ;
drawer, indorser and acceptors resided in New York that the . ;
business was conducted by the plaintiff's through their cashier while

in that city that the avails of the bill were paid in drafts on New
;
York, equal in value to city funds and that the amount thus paid
;
was the face of the biU, deducting the difference of exchange

between country and city funds, in addition to the usual discount;
the same doctrine was laid down as in the foregoing cases, and it
was held that the bill in suit was not usurious. Cowen, J., in his
opinion, says " Thus the transaction involves, when we come to
:
analyze it, two distinct bargains. It is, in effect, first, a loan by

the agent and a delivery to the borrowers of bills upon the agent's
own bank, corresponding in nominal amount with that of the pro-
posed loan. Upon this, secondly, the borrowers buy the draft of
the bank upon funds more contiguous to themselves, of a less nomi-
nal amount, but really equal in value to the bank bills which they
have obtained. This would indeed be usurious if the bank made
a profit by the transaction beyond the lawful discount. But we
know that, in general, country banks dealing in this way do not.
In the thing, per se, we can discover no profit any more than in a
like sale of exchange in London at the usual rate " {Cayuga Covmby
Bank v. Swrvt, 2 HiWs R., 635, 640).
A principle, similar to the one governing the foregoing cases,
was laid down by the New York Court of Appeals in a recent
case, wherein it was held that a contract or loan was- not rendered
usurious by
a separate and distinct undertaking between the
parties that the lender is to receive the deposits of the borrower
and to keep them -safely, and pay them over on demand on condi-
;
tioa that the notes discounted shall be paid in the city of ISew York,
by means of which an exchange of one-half of one per cent is ,
realized ito the lender on the amounts of the paper discounted

and was declared, that when the relation of the party as a bor-
it
rower is distinct from his relation as a depositor, the two relations

will notbe confounded with each other to establish the existence
of usury {Brady v. £er)jamin, 33 ISF. Y. B., 61 ; (md vide Utica
Inswrance Co. v. Cadwell, 3 Wend. R., 296). And in the State
of "Wisconsin the Supreme Court has recently held that it is not

usurious for a bank to charge the current rate of exchange in addi-
on making a loan ; and a loan made
tion to the legal interest
upon such condition was upheld {Genl/ral Bcmk v. St. John, 17
Wis. B., 157).

And it may be added, although the statement may be regarded
as unnecessary, that the taking of interest in advance, upon the
discount of a note in the usual course of business by a banker, is
not usury. This has long been settled, and is not now open for
controversy. The question came before the Supreme Court of the
United States fifty years ago, when the doctrine was plainly estab-
lished. Mr. Justice Story, in delivering the opinion of the court,

said ":The next point arising on the record is, whether the dis
coimt taken in this case was usurious. It is not pretended that
interest was deducted for a greater length of time than the note
had to run, or for more than at the rate of six per cent per annum
on the sum due by the note. The sole objection is, the deduction
of the intei'est from the amount of the note at the time it was dis-
counted and this, it is said, gives the bank at the rate of more
;
than six per cent upon the sum actually carried to the credit of
the Planters' Bank. If a transaction of this sort is to be deemed
usurious, the same principle must apply with equal force to bank
discounts generally, for the practice is believed to be universal ;
and probably few, if any charters, contain an express provision,

authorteihg, in terms, the deduction of the interest in advance
upon making loans or discounts. It has always been supposed
that an authority to discount or make discounts did, from the
very force of the terms, necessarily include an authority to take
interest in advance. And this is not only the settled opinion
among professional and commercial men, but stands approved
by the soundest principles of legal construction. Indeed, we do
not know in what other sense the word discount is to be inter
;
156 X-AW OF V8UBT.
preted. Even in England, where no statute authorizes bankers to

make discount, it has been solemnly adjudged that the taking of
interest in advance, by bankers upon loans, in the ordinary course of
business, is not VL&\mx)yx&"{Flechnor v. The Bamk erf the United
States, 8 Wheai. H., 457). The same question came before this
same court a few years and was decided the sanie way, and
later
the doctrine declared to be settled {Thornton v. The Bamk of
Washdngton, 3 Peters^ B., 36). And the State courts have also
held that, to take out interest in advance, or discounting a note
without regard to the rules of rebate or discount, is not usurious,
and, farther, in this respect there is no distinction between bankers
and others. That is to say, it is held that discounting a note at
the legal rate of interest and taking the interest in advance is not
usury, either in bankers or others ; and this is now the weH recog-
nized rule Vide TJte New York Firemen^s Insurance Oo. v.
(
Slm/rges, 2 Cow. B., 664; The TMea Insuroffice Oo. v. Bhodgood,
4 Wend. B., 652 Bank of Utica v. Wager, 2 6ow. B., 712
:
Hawks V. Weamer, 46 Bî/rb. B., 164; Stribilmvg v. Bamk, 5 Bam>-

doVpKs B., 132 ; Maine Bamk v. Butts, 9 Mass. B.,4k^, 57 ; Agri-
cvXlmral Bcmk v. Bissell, 12 Pick. B., 586).
OHAPTEE XIII.
TEASrSACTIONS NOT TTSUEIOtrS BONUS TO AGENTS FOE NEGOTIATING

LOAN.
A DEVICE sometimes resorted to by the lender of money to

realize more than the legal rate of interest for the use of his
money is, to employ an agent to loan his money, with the under-
standing that he shall charge the borrower a boniis, nominally for

his own benefit, but really to enable him to get a share of the
bonus received ; and whenever the transaction is, in point ol fact,
of this character, it is declared to be usurious. But if the agent
in good faith make a loan for another, and exacts a bonus, besides
the legal interest, for his own benefit, without the authority or
knowledge of the principal, the loan is not thereby rendered
usurious. Many cases are reported in the books in which this
doctrine is recognized, both in this country and in England, some
of which will be referred to.
In an early case in the EngKsh King's Beneli, the question wa&
clearly 'presented and decided. The action was brought by the
indorsee of a bill of exchange against the acceptors, and the
defense set up at the trial before Lord Ellenborough, C. J., at
Guildhall, was, that the bill wasdrawn for a usurious considera-
tion,and was therefore void. It appeared that the defendants,
wanting to raise money, applied to one Eimmer, a broker, to assist
them in negotiating their paper, for which he stipulated to receive
ten shillings, instead of the usual charge of five shillings per cent
for brokerage and several successive bill transactions had passed
;
between them, which the defendants who accepted these bills had
provided for, as each had become due, by negotiating another for
the amount of the former bill, with the addition of the legal dis-
count and the brokerage agreed on, which latter Eimmer received
and deducted out of the money raised on each successive bill.
Lord Ellenborough, C. J., no

directed the jury that there was
actual loan of money here for a usurious consideration, by the
party advancing the money on the bill and that the taking of ;
exorbitant brokerage by Eimmer for getting the bill discounted by

others, and which was deducted by him out of the money raised,
would not avoid the security (by the statute 12 Anne, oh. 16) in
the hand of an innocent indorsee and the jury thereupon found
;
a verdict for the plaintiff. The attorney-general moved for a new

on the gromid that the words of the statute were broad
trial,
enough, in that branch of it which avoids the security, to include

this transaction ; but the rule was refused. Lord Ellenborough,
C. J., in his opinion, said :
" It does not appear that Eimmer's
name was upon the bill at all ; nor was he to advance the money.
It does not, therefore, strike me as a security given for a usurious
consideration ; but Eimmer was to receive an exorbitant broker-
age for his trouble in getting the bill discounted." Le Blanc, J.,
said " If Eimmer had agreed to advance the money for which
:
the was given, that would have been a different matter, but
bill
here he advanced nothing and the person who did advance the
;
money, for the bill received no more than legal interest for dis-
count. Eimmer, indeed, got more out of the money when
obtained ; but that may be said to be for exorbitant commission
or brokerage" {Dagndl v. Wigley, 11 East's R., 43).
In a later case, before the same court, where a broker carried
bills to be discounted, and allowed to the person discounting
.
158 I^'A.W OF USURY.
interest •
at , £5 per cent per annum, and in addi-
the rate of
tion, £1 per amount of the bills toward the pay-
cent on the
ment of a debt due from a third person, but which the broker
thought himself bound in honor to pay, and the broker accounted
to his principals for the whole amount of the bills, services,
lawful discount and commission; the court held that the
transaction was not usurious. Lord Tenterdon, 0. J., gave the
opinion of the court and said " The question in this case was,
:
whether the bills on which the plaintiffs had commenced their

action against the defendants as acceptors were tainted with usury.
They had been discounted through the intervention of a broker
of the name of Bramley, who before the discounting of the bills
ha4 represented to Akedo, the bankrupt, by whoia they were dis-
counted, that in consequence of his having recommended to the
bankrupt, one "Wagstaffe, for whom Alzedo had discounted bills,
but who failed, so that Alzedo had incurred great loss, he,
Bramley, felt himself under an honorary, though not under a
legal obligation to make good that loss. The mode which he pro-
posed in order, to affect this object was, that as he could not pay
the whole at once (for he otherwise would have done so), he
(Alzedo) should go on discounting for him, and should deduct
from the sums to be paid to him (Bramley) on such discount £1
per cent; but, nevertheless, Bramley was not to deduct that
£1 per cent from the persons who employed him, but to
account to them for the full amount, deducting only ordinary
interest. I left to the jury the question, whether they were of
opinion that Bramley thought himself under an honorary obliga-
tion, intimating to them as my opinion, that in case they thought
Bramley acted under an idea, honestly formed in his own mind,
that he was under an honorary obligation to pay the money, I was
inclined to think that, in point of law, it was not a usurious con-
tract. I still incliae to think that if Bramley did feel himself
under an honorary obligation, the contract was not usurious and
;
I believe some of my learned brothers are of the same opinion,

though one of them differs from me. We are all, however„agreed
that, notwithstanding I did intimate to the jury my opinion upon
the subject, yet as I left it to them to exercise their own discre-
tion, and to show their own conclusion from the evidence, we
ought not to disturb their verdict, and that more especially as
this is a case in which, if the usury be established, the penal con-
;:
sequences are heavy. The rule for a new trial must, therefore, be
discharged " {Salarte v. MeMlle, Y Ba^n. dh Ores. R., 427 ; S.
C, 14 Eng. G. L. H., 73). And of a similar import was a decision
of the English Court of Chancery. An agent, authorized to settle
a debt due the estate, took a note to the administrator for the
principal sum due, and one to himself for usurious interest. The
court held the first note was not void, unless the administrator
knew of the usury and assented to it {Booster v. Buck, 10 Ves.
E., 548).
The American cases are quite as, if not even more, decisive
upon the poiat. In an early case before the old Supreme Court
of the State of ITew York, the court adopted the doctrine of the
English cases on the subject. The case came up on error from,
the Common Pleas of New York. The action below was assump-
sit by plaintifis as indorsees against one Coster, payee and indorser
of a promissory note made by one Murgatroyd for $240, dated

October 22d, 1825. The defense was usury and it appeared on
;
the trial that the note was a renewal of one made for the accommo-
dation of Murgatroyd, to secure the money which one Johnson, at the
request of Murgatroyd, procured of one "Wendell at lawful interest
but Murgatroyd agreed to pay Johnson three per cent a month,
which had been done, and he put the three per cent into his own
pocket. The question of fact at the trial was whether Johnson
was employed by Murgatroyd as his agent, or was a principal pro-
curing the money* on his own account and lending it to Murga-
troyd. The jury rendered a verdict for the plaintiffs, and the
defendant brought error on exceptions to the charge of the court
referring the question to the jury. Curia, per Savage, Ch. J.
" The proper question was put whose verdict cannot
to the jury,
be reviewed here as to the weight of evidence. They have neg-
atived the fact sent up by the defendant below, that Johnson was
a principal,which leaves the case much like that of Dagnell v.
Wigley (11 East., 43). In that case, a bUl of exchange, procured
like the note now in question, was held not to be usurious, upon
the ground that the person advancing the money received no more
than legal interest ; the person receiving more, a broker, being the
drawer's own agent. Judgment affirmed" {Coster v. Dilworih,
8 Cow. E,, 299, 301). And in a later case, before the
same court,
itwas held that a note reserving interest, negotiated by a broker or
agent, who obtains the money on the same for the ntaker from a
160 i-^T^ OF USUBT.
third person, not usurious in the hands of the holder, although

is
the agent be the payee of the note and receives twelve and ^ half
'
per cent for the negotiation, no part of such sum being paid or agreed
to be paid to the person advancing the money. Savage, 0. J.,
gave the opinion of the court and said " By the testimony of
:
Corp it appears that he was the mere agent or broker of the defend-
ant that he was not, in fact, a party to the loan, and that what
;
iscomplained of as usury was a gratuity. There was no corrupt

agreement between the plaintiff and the defendant. In- the lan-
guage of Le Blanc, ia 3agwaU v. Wigley (11 East., 45), if Corp
had agreed to advance the money, that would have been a different
matter. But he has advanced nothing, and the person who did
advance the money received no more than legal interest. Corp
swears that the notes on which the money was received were
discounted on the responsibility of the indorsers, and that he
acted throughout as the agent for the defendant." The^ case
showed that the question was submitted to the jury at the circuit,
and the judge charged the jury that the verdict should be for the
plaintiff if they believed the testimony of Corp. The jury found
for the plaintiff, and a motion was made to set aside the verdict,
which the court denied {Barretto v. &nowden,, 6'Wend. JR., 181,
186, 187). In aU of these eases the person taking the bonus for
making the loan was held to be the agent of the borrower, and
it did not appear that the lender was privy to the arrangement
between the borrower and his agent, under which the amount was
received.
The next case in the State of New York involving the question,
which it is important to notice, was originally decided by the
present Supreme Court of the State, wherein it was held that an
agreement, made by a borrower with the agent of the lender, that
the agent shall have a commission for making the loan, does not.
I'snder the transaction usurious and the security void if made
without the knowledge of the lender, and it is in no respect foi-
his benefit or advantage.It was declared that in such a case the
agreement will be held to be that of the agent of the borrower
only, or the private extortion of the agent, and that he alone is
answerable for the wrong, The loan was negotiated by the agent
of the borrower with the agent of the lender. The amount
of the loan was $400, and for the service the borrower paid
his ow-n agent $15, and the agent of the lender $25, and
TBANSACTWNS NOT USURIOUS. 161
no charge was made by tlie lender's agent to his principal foi

negotiating the loan. was originally tried at Spe-
The action
cial Term, where judgment was given for the defendants on
the ground of usury, and the plaintiff appealed to the General
Term, at which a new trial was granted. Johnson, J., who
delivered the opinion of the court, said " Upon the facts found
:
by the judge at Special Term, was this transaction usurious, per

se ? It was held to be so by the learned justice before whom
the cause was tried, although the feet is distinctly found that the
plaintiffhad no knowledge of the charge of twenty-five dollars by

his agent, and never received any portion of it. As the plaintiff
never knew of the charge, and it was not made for his benefit but
for the exclusive benefit of his agent, he cannot be held to have
sanctioned it by bringing the- action, to collect the note. The deci-
sion at Special Term goes farther, I think, thaA any court has yet
gone in this direction. At least, I have been able to find no
reported case which goes this length, and' upon principle I do not
see how it can be sustained. * * * An agreement between
the' lender and his agent, that the latter may exact a commission
from borrowers may, 1 have no: doubt, be proved, and where the
fact is established the inference may be- drawn that the lender
authorized or sanctioned the exaction in any given case and, per- ;
haps, this agreement may be inferred from the course of dealing

between the principal and. agent. « * * I have no doubt that
the agent of the lender, whether the principal agree to it or not,
may lawfully take compensation of the borrower for any services
actually rendered, for the latter at his request. If the amount
exacted isbeyond a fair compensation for other services, and
fer
it is shown to have been within the knowledge of the lender
and part of the agreement to make the loan, a question of fact

would arise for the jury whether the compensation exacted was
not a mere cover for usury. Usury is a question of fact and ofintent.
In the present, case there can be no pretense that the agent ren-
dered any services to the borrower, or was acting in any sense as the
borrower's agent. * * *
All the plaintiff's agent' did was to
receive, the note and give his check for the $400, the amount of
the note. It will be seen, therefore, that he acted wholly for the
plaintiff. The borrower drew the money and paid the twenty-five
dollars afterward to the plaintiff's agent, in pursuance of the
agreement between them. And the case turns wholly upon the
21
162 i^w^ OF vsusr.
question whether this part of the agreement, for the commission

or compensation to the agent, was the agreement of the plaintiff.
It seems clear to my mind
that, inasmuch as the plaintiff never
authorized or sanctioned nor even heard of it, and derived no

it,
benefit or advantage whatever from it, it cannot be regarded as his

agreement. Courts ought and wiU look with jealous scrutiny upon
all such practices by the agents of lenders, and see that the statute
is not violated and its provisions evaded under the cover of an
agency. But they should be equally careful to protect the honest
and innocent lender from the secret and exorbitant exactions of
grasping agents, and the secret and unauthorized agreements
between such agent and the borrower. My conclusions are that
the note is a valid note and never imbibed any taint of usury, and
that the action is well brought. The judgment of the Special
Term must, therefore, be reversed and a new trial ordered, with
costs to abide the event." "Wells, J., dissented, but Selden,
J., concurred, and a new trial was denied {Gondii v. £ald-

. win, 21 Barb. R., 181, 190). The ground was taken by the
defendants' counsel in this case that the act of the agent
was the act of the principal, and, hence, that the contract of
the agent of thie lender to make the loan was binding upon
his principal, the plaintiff, and that it was his contract. The
counsel cited works and authorities on agency to prove his posi-
tion but the court held that inasmuch as the agent of the bor-
;
rower and the agent of the lender had made the agreement in
respect to the commission, without the lender's knowledge, and in
no respect for his benefit or advantage, it must be considered the
agreement of the agent and the borrower only, or the private
extortion of the agent, and that he alone,, if any one, should be
held responsible for the wrong. It was also contended that although
the act of the agent in taking the bonus was not authorized by
the principal, that is, the lender, yet that she had ratified the ille-
gal act by receiving the security and bringing her action upon it,
thus claiming all the benefits resulting from the transaction but ;
the court do not seem to have considered it necessary to take into

accoimt that view of the case. An appeal was taken from the
judgment to the Court of Appeals, and the judgment of the
Supreme Court was affirmed the Court of Appeals laying down
;
the rule that, where an agent, intrusted with money to invest at

legal interest, exacts a bonus for himself as the condition of mpki^g
a loan, without the knowledge or authority of his principal, the act

of the agent does not constitute usury in the principal, nor affect
the security in his hands. Davies, J., in the prevailing opinion of
the court, said :
" In the present case it is not alleged or pretended
that the plaintiff has personally taken or received any illegal inte-
rest on the loan made to the defendants, or that she had any know-
ledge, until the trial of this cause, of the secret arrangement made
by Mills, the agent of Baldwin, the borrower, with "Williams, her
attorney and agent, whereby the latter received a douceur for his
private and exclusive benefit. The plaintiff, a non-resident jof the
State, sends her money here to invest, according to the laws of this
State. All the authority given to Williams, as her agent and attor-
ney, to transact the business of his prihcipal, must, in the absence
of any counter proof, be construed to transact it according to the
laws of the place where it The law will never
was to be exercised. •
presume that parties intend to violate its precepts. * * * The

rule that when an agent commits a wrong in the transaction of the
business of Jiis principal, the principal is liable for the injury pro-
duced by such wrong, has no application to the present case. The
rule cannot apply where the agent, when committing the wrong,
is bargaining on his own account, for his own private advantage
exclusively, and known to the
this is person with whom he is bar-
gaiaing. It could only apply where the person dealt with is deceived
or wronged, which in no sense is the present case. * * * But •
it is urged with great earnestness and ability that the plaintiff, by
accepting the note and commencing this suit upon it, has ratified
all the acts of her agent connected with the loan and attendant
upon its inception. We have carefully looked at all the anthori-
ties cited by the learned counsel for the defendants, and we think
they fail to sustain the proposition contended for. The plaintiff,

by receiving and accepting the note for the amount of her money,
and which she loaned through her agent, only ratified the contract
of loan at the rate of interest expressed in the note. She had no
knowledge of, and cannot be held to have ratified, the payment by
Baldwin's agent to Williams of the twenty-five dollars usuriously
by him taken, as is said. We think the cases fully sustain this view
of the plaintiff's act, in receiving the note and commencing suit
thereon." Comstock, Oh. J., dissented, and in a very able opinion
contended that the loan was made in pursuance of a single contract,
and that this contraet enabraced the whole transaction that there ;
;
164 LAW OF VSUBT.
was but one original agreement, which included the whole subject
and this being the case, it was insisted that more than lawful inte-
rest was included in the loan. The chief judge further contended
that the plaintifE could not be permitted to divide the contract into
two parts, and adopt one part, while she rejected the other. This
position was predicated upon the well-known elementary principle
recognized by the authorities and laid down by Mr. Justice Story,
that " the principal cannot, of his own mere authority, ratify a
transaction in part and repudiate it as to the rest. He must either
adopt the whole or none. And hence the. general rule is declared .
that when a ratification is established as to a part, it operates as a

confirmation of the wholeof that particular transaction of the agent"
{Story on Agency, § 250). Applied to the case in hand, the result
of this rule was thought to be that the plaintifij if she insisted upon
the contract at all, must take it " with all its vices and infirmities."
Denio and Welles, JJ., concurred in the opinion of Chief Judge
Comstock, while Selden, Gierke, Wright and Bacon, JJ., concurred
in the opinion of Judge Davies ; and the judgment of the Supreme
Court was therefore affirmed {Gondii v. Baldwim,, 21 N. Y. E.,
219, 221, 223, 225, 229, 231).
,
Soon after the decision of Gondii v. Baldwin by the Com-t of
Appeals, a case came before the Supreme Court, in which it appeared
that a broker loaned $2,000 belonging to his principal for thirty
days, charging the borrower thereof a commission of seventy-five
dollars, which was paid. A note was given for the $2,000 loaned,
and when it became due another arrangement was made with the
broker, under which the loan was continued for the space of thirty
days longer and the broker received another extra sum of eighty dol-
lars, and a new note was given to the broker to secure the originai
loan of $2,000. This last note not being paid, the lender brqughi-
and the defense of usury was interposed. The case was properlv
suit,
submitted to a jury at the circuit, and a verdict was found for the
defendants. The plaintifE thereupon appealed to the General Term,
where the verdict was set aside as being against evidence, and a
new trial ordered. Ingraham, J., in delivering the opinion of the
court, said" The defense set up by the defendants in this case to the
:
note pn which the action was brought was usury. That usury was
alleged to be the payment of more than seven per cent to one
Hardenburgh and at subsequent
for originally obtaining the loan,
times for renewal of it. Whether such payment was usurious or
not depended on the character in which Hardenburgh was acting.

If the original loan was for money, then the taking of more than
seven per cent interest would affect the security with usury, and
make it void in the hands of any subsequent successive holders.
But if he was acting as a broker, and this commission was charged
by himself, without the knowledge or participation of the lender,
then it would not be a usurious transaction. This has been held
by the Court of Appeals in Gondii v. Baldwin, at a recent term.
The testimony of Hardenburgh is positive on this point and if it ;
is to be credited, then it is very clear that he was only an agent,
and what he received in no way passed to the lender, Hayward,

nor was it to be considered as constituting usurious interest. On
the contrary, it was merely a commission to the broker for his ser-
vices, paid without the knowledge of the lender, and paid with the
knowledge that Hayward was to loan the money, and not Harden-
burgh " {North V. Sergecmt, 33 Bm-l. B., 350, 352, 353 ; and vide
FeElo'ws V. CoTwndssioners, etc., of Oneida, 36 ib., 655).
The ease of Gondii v. Bald/win has been fully recognized as
authority by the ITew York Court of Appeals in a subsequent case,
although an effort was made to induce the court to reverse its deci-
sion in the former case. The action was brought by a Mrs. Earle,
the payee of a promissory note given upon the loan of her money
by her agent, one Glover. The defense was usury, and it appeared
on the trial that application was made to the plaintiff's agent, on
behalf of the defendant, to borrow Mrs. Earle's money on a note
bearing interest, and it was agreed in substance between Glover
and the party actibg for the defendant that, as a condition of mak-
ing the loan on the note, the defendant should pay Glover fifty
dollars. Accordingly, Glover went to Mrs. Earle's rooms, and
there received from her $1,000 in gold, and brought it to the
defendant and handed the same to him. The defendant and others
counted the money, and afterward separated fifty dollars from the
packages, and handed it to one Vedder. The note was delivered
to Glover, and by him taken to Mrs. Earle. Vedder subsequently
handed the fifty dollars to Glover. Mrs. Earle testified that she
knew nothing of the arrangement by -which the fifty dollars were
to be paid, or that such sum was paid to any one, and that she never
heard of the fifty dollars transaction until after the suit was brought.
The judge at the circuit charged the jury, among other things,
that if they found that Glover was the general agent of the plain-
166 I'-^W OF USURY.
tiff, and claimed and took the fifty dollars for the plaintiff as her
agent, and for the purpose of obtaining more interest than at and
after the rate of seven per cent, although the plaintiff was ignorant
of the fact, and did not specially authorize it, yet she was barred
by the acts of Glover, as her agent, and the defendants were in that
case entitled to a verdict. To this part of the charge the plaintiff
excepted. The court further charged that the principal is- bound
by the acts of the agent in the loaning of money at a usurious rate
of interest, although the same be done without the knowledge or
consent of the principal. To this the plaintiff also excepted. The
plaintiff's counsel asked the court to charge that if Glover took or
received the fifty dollars without the knowledge or consent of the
plaintiff, it was not usury, and the plaintiff would be entitled to
recover on the note in suit ; but the court declined so to charge,
to which the plaintiff's counsel excepted. The counsel for the
plaintiff further requested the court to charge that, under the evi-
dence, the plaintiff was entitled to a verdict ; the court refused thus
to charge, and the plaintiff's counsel excepted. The jury found a
verdict for the defendants. A motion was thereupon made on the
judge's minutes at the same circuit for a new trial, and the court
granted the motion. On an appeal, founded on case and exceptions,
from the order granting the new trial, the order was reversed by
the General Term; whereupon the plaintiff appealed from the
judgment entered on the verdict, on the same case and exceptions,
and the judgment was affirmed, and the plaintiff then appealed
to the Court of Appeals, where the judgment was reversed and a
new trial granted. It appears, however, from a note by the reporter,
that a majority of the court were against reversal, if the principal
point had been open to consideration as an original question, and
two members of the court yielded to the authority of the decision
in Gondii v. Baldwin only on the principle of st(we decisis. Only
two opinions were delivered in the ease, and both of them were
by judges who dissented from the judgment. Davis, J., in his
opinion, said " The court below, in reversing the order for a new
;
trialmade by the judge at circuit, distinguished this ease from

Gondii v, Baldwin (21 iT. Y. R., 219), and held that neither the
charge as given, nor the request to charge, raised the point involved
in that case. The conviction of the learned justice by whom the
opinion of the court below was pronounced, that ' the doctrine of
Gondii v. Baldwin is somewhat novel and difficult to sustain, and
for that reason should not be applied to cases not clearly falling
within it,' led him, it is apprehended, to seek for a distinction where
no real difference exists. * * * A
careful examination of this
question brings me to the conviction that, so far as relates to the
question presented by the request to charge, this case is not justly
distinguishable from ConMt v. Baldwovn ; and, if that case be con-
clusive evidence of the law, the judgment in this should be reversed
and a new trial granted. But I am not without hope that this
court is prepared to revoke its decision in Gondii v. Baldwm.
The error of that case has not become so inveterate that to adhere
to it is better than to return to sound principles. The circumstances
of the times, since its promulgation, owing to the inflation and
character of the currency, have been such, that the usurer's '
occu-
pation's gone.' It has wrought, therefore, little if any of the
evil that ordiaarily would attend a practical amendment of the
statute against usury. To retract the decision now, wiU be in
time to guard to some extent against the ills of a future revulsion,
in which avarice may prey upon necessity through the wide breach
that case has opened in the law of usury. After the clear and
forcible dissenting opinion of Comstock, Ch. J., in Gondii v.
JBaldwIn, it borders on arrogance in me to assume to discuss the
question. The few suggestions made can hardly escape the
censure of being unnecessary repetitions. * * * A vital error
of Gondii v. Baldwin lies in assuming that the agent can make
this contract so that the bonus will belong to him, and not inure
to the benefit of his principal. But that is an impossibility both
at law and in equity. To hold the contrary, is •
to assert that an
agent, by violating his duty, can secure gains to himself greater
than its performance could give him. It is a principle too well
settled tobe shaken, that an agent cannot so deal with the sub-
ject-matter of his agency, whether within or without the scope
of his authority, that the profit therefrom shall inure to himself.
* * *To hold that a party employed to loan money for
another may make it the condition of a loan that the borr#wer
shall pay to him a sum of money in which his employer shall have
no interest, is to subvert the fundamental principles upon which
the doctrines of principal and agent, trustee and cestui que t/rust,
rest. would even overthow aU agencies, if the courts were to

It
settle that an agent could, by departing from his authority, stipu'
late for and hold advantages for himself. The personal gain of
;
168 XiAW OF USWBT.
the agent would become the primary motive of his conduct, and
thus thwart the policy of the law, which has ever been to pre-
serve his truth and faith toward his employer by denying him all
possibility of advantage, by fraud or treachery or departure from

the plain line of his duty. * * * But it is argued there can
be no violation of the statute against usury without an intent to
violate it ; and that the intent in tliis case pertains solely to the
agent, and in no sense aflfects the principal, because of her total
ignorance of the illegal conditions of the contract. This position
is undoubtedly sound, so fai-'as the (Question of intent affects the
plaintiff crimimaliter. She could not be prosecuted criminally
until she had knowingly ratified the transaction by receiving the
stipidated usurious provisions. Until then the crime is the agent's
alone. But in considering this question of intent we must not
confound the personal intent, which is the essential ingredient of
crime, with the legal intent which the law deduces from the acts
of the parties independently of any guilty motive on their part.
* * * The agent who effected the loan cannot be chargeable
with usury unless he made a usurious loan he made such ; and if
a one, then the evidences of it are void

whose by statute, into
hands soever they may come. It may be said the principai makes
the loan, and the agent takes the usury but the usurious premium ;
is the consideration of the making of the loan, no matter who
makes it ; and as that fact cannot be expurgated by any argument,

the taint of usury affects the loan, or thereis no usury. It would
have been better to have boldly said the transaction is not within
the statute of usury at all, but mere extortion, than to uphold the
loan as not void for usury, and condemn the bonus as evidence of
crime under the statute against the agent. * * * If her agent
had exceeded his authority in making the contract, the law gave
her an election of remedies : to repudiate the contract and pur-
sue her money into the hands of the party who had received it
to prosecute her agent for a violation of duty, and recover such

damages as she had sustained by his misconduct or to insist upon ;
the contract he had made, taking it as in fact made, and of course,

in that proceeding, estopping herself from raising the question of
his authorily. Until Gondii v. Baldwin, I think there was no
ease, entitled to be regarded as authoritative, that held she had any
further rights." Brown, J., in his opinion, said " I find myself :
unable to extract any general principle from the case of Gondii v.

Baldwin (21 N'. Y., 219), which will aid us in afpplying the
statute of usury to contracts for the loan of money. We cannot
with safety accept it as an adjudication, that usurious contracts
made by an agent for his principal, and without special authority
from the consequences
in regard to the rate of intelrest, are free
denounced by the and may be enforced, in the courts at
statute,
the suit of the principal. The consequences of fiuch a rule would
be to deprive the statute of any real vitality and living power,
and reduce it to a mere There are no legal
hrwt'Mrb ful/men.
analogies to sustain where the contract sought to be
it, foT
enforced is that made by the agent, it is neither good nor bad, legal
nor illegal. If the agent had power to make it, and it transgresses
no rule of law, it is legal, and may be enforced but if he had no ;
power from his principal to make such a contract, and especially

if it be tainted with an element forbidden by law, the principal is
not bound to accept it, and it cannot be enforced as an obligation

against him, if in terms it creates an obligation, nor can he be
affected or prejudiced by the consequences resulting therefrom.
This is the most that can be said. He may repudiate and reject
it as soon as its illegality comes to his knowledge he may treat it ;
as a nullity, and occupy the same position he would have been in

had it never been made, and seek bis reifiedy, for what he has lost
or been deprived of, in some other form or against some other
person. He cannot, however, accept a part of it and reject
another part. It is entire and incapable of separation. * * *
No one would doubt, I think, that if the agent himself was the
party to the contract, in the place of the principal, that it would
plainly be usurious. It does not cease to be so because the prin-
cipal is the party and not the agent. It remains the same identi-
cal contract in all its essential particulars, and usury is of its
essence whichever may be the contracting party."

It appears from the report of the case that all the judges, except
Brown, J., concurred in the opinion that it was not distinguishable
from Gondii v. Baldwin and that the judge at the circuit erred
;
in not charging the jury as requested. Denio, Ch. J., and Porter,
J., expressed their concurrence in the views of Davis, J., but
acquiesced in a reversal on the authority of Gondii v. Baldwin,
on the. principle of sia/re decisis. Porter, J., concurred with
Davis, J., both in his views and conclusions {Bell v. Day 32 W.
T. R., 165, 168, 170-1T4, 1T8, 1Y9, 182-185 ; smd vide Elmers
22
;
170 LAW OF USURY.
Oakley, 3 Lans. B., 416). The questions discussed in the cases

of Gondii v. Baldrnvn and Bdl v. Day are exceedingly, inter-
esting and important, and enough has been extracted from the
opinions delivered, both prevailing and dissenting, to present fairly
the views of the members of the court. Of course, the questions'
decided may be regarded as settled in the State of New Tork
but from the strength of the dissenting members, and the able
and well fortified opinions delivered in opposition to the conclu-
sions arrived at in the cases, it is doubtful whether they will be
readily acquiesced in by the courts of other States.
Something akin to the doctrine of the last cases considered was
enunciated in an early case in the State of Vermont. An agent who
was authorized to settle a debt due to an estate took a note from the
debtor to the administrator for the sum due, and another for a
further sum to himself payable at a future day. The former note
not being paid when due, the administratrix sued it, and the
maker set up usury, but the court overruled the defense. The
court said :
" Inasmuch as there was a hona fide indebtedness to
the estate of which plaintiff was administratrix, and the note
received by plaintiff was only for the just amount due, the note
in suit would not be void if Petrus Baxter (the agent), without
her consent, received a note for himself for any further sum " {Ban-
ter V. Buck, 10 Yt. R., 548). The principle of this case would
seem to uphold the validity of a note to the principal, given under
the same circumstances as in the cases of Gondii v. Baldwin and
Bell V. Day / and although the case has never been directly over-
ruled, yet in a much later case before the same court the same
principle was involved, and the transaction was held to be usurious
( Yide Austin v. H&rrmgion, 28 Yi. R., 130). Nevertheless, the

doctrine is well settled, and universally recognized, that an agent
may lawfully take a reasonable commission or bonus from the
borrower for his expenses and services in effecting a loan and ;
whenever the lender is not privy to the arrangement between the

borrower and agent, or in no way participates in the commission
or bonus, the transaction will be regarded as free from the taint
'
of usury.
The Court of Errors and Appeals of the State of New Jersey
have recently laid down the rule, in accordance with that recog-
nized in the State of New Tork and elsewhere, that if an agent,
in making a loan of money, accepts from the borrower a bonus
beyond the legal rate of interest, such act of the agent will not
render the contract usurious, if the bonus was taken without the
knowledge of the principal, and was not received by him.
An action was brought in the Court of Chancery for the fore-
closure and sale of certain mortgaged premises to pay the balance
claimed to be due on a bond and mortgage. The defendant set
up as a defense that the transaction was usurious. It appeared
that the bond and mortgage were given for a lc?.n of $5,000, made
by the agent of the lender, and it was claimed that the loan was
made by the said agent on condition that the lender should pay
him a bonus of $100, which was paid at or about the time of the
delivery of the bond and mortgage. The chancellor overruled
the defense and ordered a decree in favor of the appellant, and
the defendant appealed to the Court of Errors and Appeals, where
the decree of the chancellor was unanimously affirmed. Elmer,
J., delivered the opinion of the court, and said :
" We are not
satisfied that the first ground of usury thus set up is proved to be
true. The defendant himself swears to the facts; but although
the statute has made him a competent witness, his credibility is
open to question, and we do not feel justified in deciding that a
debt, secured by a bond and mortgage, shall be discharged, by the
uncorroborated oath of the party who has made and is bound by
them. In this ease, it appears that he has paid the interest for
many years, and a part of the principal, and made no complaint
of usury during the lifetime of Mott, who alone could contradict
him. But if he did pay a ionus of $100 to Mott to obtain this
loan, as he alleges, there is not only no evidence that he had any
authority from the institution to receive it, or that the other
members of the funding committee, by whose concurrence tlie
loan was made, had any knowledge of the transaction, but it
is found that they were ignorant of it, and that no part of the
money went into the funds of the complainants. This ground of

usury, therefore, entirely fails " (Muir v. The Newark Swvings
Institution, 1& W. J. Eq. R., 537-539).
And in another case, in thesame State, it was held that the
payment of illegal brokerage to an agent for effecting a loan, where
no part of it is received by the lender, cannot taint the loan with
usury {Gonover v. Yan Mater, 3 Greenes R., 481).
In the State of Connecticut it has been held that a loan, which,
if made by the principal, would be usurious, is not so if made by
172 L-AW OF USURY.
an agent, and the excess of interest is paid, or stipulated to be

paid, to the agent, for the use and benefit of the agent only, with-
out prior authority from the principal, or subsequent ratification
by him ; was further held, that authority to make a usurious
and it
loan will not be presumed when the agency is special and limited
to a single transaction. It was said, however, that it may be pre-
sumed when the agency is genehilj and embraces the biisiiiess of
making, managing and collecting the loans of a moneyed man.
But, it was added, it is presumptioin of fact, and may be rebutted
{Rogers Buohmghwrn, 33 Conn. M., 81).
v.
And it was decided that whfen it was
in the State of Virginia
agreed between a debtor and creditor that, besides paying the
principal and interest of the debt out of certain securities placed
in the hands of the oreditbr's counsel, who was to collect and
appropriate thein to the debt, the debtor should pay the counsel
two and a half per cent commission on the debt, this was a reason-
able compensation for that service, and that the transaction did not
constitute usury (SqpMns
Bah&r, 2 P. <& IT. M., 110).
v.
The is, that a bonus paid to an agent by

general doctrine, then,
the borrower, as a compensation for procuring a loan, when the
same is not resorted to for the purpose of enabling the lender to
procure more than the legal rate of interest for the use of his
money, does not render the Iban usurious and the cases referred
;
to in this chapter may be regarded as the leading ones illustrative

of the subject, wherein the trainsactions have been upheld by the
courts.
CHAPTEE XIV.
TEANSAOTIONS NOT UStTEIOtrS OASES DJ WHICH THE MONET LOANED

IS NOT AGREED TO BE BBTUENED AT ALL EVENTS BOTTOMKT
CONTRACTS —
00NTEACT8 IN THE FORM OF A POST OBIT TRANSAC-
TIONS BETWEEN PARTNERS.
It has been shown in a previous chapter that, in order to con-

stitute usury, there must be a contract for the return of the money
loaned at aU events / for, if the return of the principal, with inte-
rest, or of the principal only, depend upon a contingency, there
can be no usury. This is obvious ; may never
because that which
be received cannot be said to be forborne for any given time.
: :
TSANSA^WIQNig NOT USURIOUS. 173

But if the cpntingency extend only to the intprest, and the prin-
cipalbe beyond the reach of hazard, the lender or forbearer can,
in such case, lay no claim to interest above the legal rate, without
being guilty of usury. It has been shown, hove^êr, that a, distinc-
tion is to be observed between a contingency merely affecting the
interest and an option which the debtor has of defeating the pay-
ment of any interest by a performance of some act stipulated foi?
at the creation of the contract ; for, when such an option is given,
and the debtor either neglects or refuses to avail himself of such
condition, the law insists upon his paying auch additional interest
as a penalty for his negl^qt or refusal. Cases in which the courts
have sanctioned the agreement to pay a premium greater than the
legal rate of interest, in consideration of _th,e hazard which affects
the principal, are quite numerous ; but the doctrine is best illus-
trated where money has been advanced by way of insurance, bot-
tomry, post obit, and annuity. In all these cases, however, it must
be clearly seen that no usurious transaction ip concealed beneath
such as are thus favored by the law. For then no form will pro-
tect the contract ; the substance must be taken into consideration ;
and any usurious intenlion wilj, vitiate an insurance, or an annuity,

as much as if there had been no such disguise assumed by the
contract. But to the examination of cases which ha,ve been held
to be free from; the taint of usury, because the return of the money
loaned has dv^pended upon a contingency, or the principal has been
subjected to hazard
One of the earliest English: cases reported, illustrating the doc-
trine that usury cannot exist where, by the terms of the agreement,
the principal and interest are hona fide put in jeopardy, was this
A ship went to fish in Newfoundland (which voyage might be
performed in eight montljs), and the plaintiff delivered £50 to the
defendant, to pay £60 upon the retijrn of the ship off Dartmouth ;
and the said ship, by occjasipn of leakage or tempest, should not

if
return from Newfoundland to Dartmonth, tên th^ defendant

should pay the principal money, viz., £50 only ; and, if the ship
never returned, he should pay nothing. Upon aii objection to the.
legality of this contract, it was held unanimously by the court not
to be usury within the statute ; for, if the ship staid at ISTewfound-
land two or three years, the defendant should have paid at the
return of the ship but £60 ; and if the ship never returned, then
nothing ; so that the pkintifF ran a hf^za^-d of having less than the
174 LAW OF VSURT.
interest which the law allows, and possibly neither principal nor
interest would be returned {Sharpley v. Hwnt, Oro. Jac, 208).
Another early case was where an obligation was made, condi-
tioned that if a ship sent to sea, or the goods therein, or the
obligor, should return safe, to pay him the sum, beyond the rate
allowed by the statute, for the loan of £100, and also the £100.
It was objected that this was a usurious contract, because pay-
ment depended upon so many things, one of which, in all proba-
bility, must happen ; though if it had depended on the return
of the ship only, it might be good. But it was resolved by the

whole court that it was a good bill of bottomry, and tolerable by
the usage among merchants, and allowable by reason of the great
perils of the sea {Sawyer v. Ohcm, 1 L&o. B., 54; xSl C, 1 Sid.
B.,21).
And another early English case was where a bond was condi-
tioned to pay so much money, if such a ship returned within six
months from Ostend to London, which was more by the third
part than the legal interest of the money ; and, if she did not
return, then the obligation to be void. It was alleged and con-
tended that this was usury. But Hale, Chief Baron, said:
" Clearly this bond is not within the statute, for this is the com-
mon way of insurance;, and, were void by the statute of
if this
usury, trade would be destroyed. and a casualty

It is uncertain
whether such a ship shall ever return or not {Joy v. Kent, Rardr.
E., 418).
And stilly another early English case was where an obligation
was entered into to pay the plaintiff £100 on the marriage of the
daughter of one of the parties and if either the plaintiff or
;
defendant should die before such marriage, nothing was to be

paid. On action brought upon the bond, the defendant inter-
posed the defense of usury, and that this was for the loan of £30
before delivered. The plaintiff demurred to the plea of the
defendant, and the court sustained the demurer, holding that it
was plain bottomry {Long v. Wharton, 3 Keb. B., 307 and vide ;
Grigg Forrest s B., 4).

v. Stoker,
And in a comparatively late case in the English King's Bench,

in debt on a bond, purporting to be a loan on respondentia on an
East India ship, to which two sets of special pleas were pleaded,
one set alleging usury and the other illegality, under the statute
(19 Geo. II, oh. 37, § 5), it was left to the jury to say whether it
;
:
TBANSlACTIONS NOT USWBIOUS. 175

was a lonaflde transaction on respondentia, or a loan on usury
the jury found in favor of the plaintiff, and the defendant moved
for a new trial, but the motion was denied. Lord Tenterden, 0.
J., summing up to the jury, on the trial before him, said
in his
" This an action on a bond purporting to be on respondentia.
is
The .question is whether it was really a loan at respondenUa, or

was merely a loan which the form of a respondentia was given,
to
as a color to enable the plaintiff to get more than legal interest.
On the face of the instrument it purports to be on respondentia.
If the ship had been lost, the money would have been lost too.
It is of no consequence to the plaintiff whether Wilkinson allowed
Crosthwaite to have the money afterward or not. If you think it
was hona fide a transaction on respondentia, then you will find
your verdict for the plaintiff; if on the contrary, then you will
find for the defendant." The court, in ha/nco, expressed the
opinion that, in effect, the direction of the jury was sufficient, and,
therefore, refused to grant the rule for a new trial (Tf^wwev.
Orosthwaite, 4 Cwrr. & P. B., 178 ; S. C, 19 Ikg. C. L. E.,
329, 336).
These were all held to be cases of bottomry and respondentia,
and, therefore, clear of the taint of usury. In our own country
the law is equally decided that bottomry and respondentia bonds
and contracts are not within the statutes against usury and some- ;
times, as in the State of New York, the rule is incorporated into

the law itself; that is to say, such transactions are expressly
excepted out of the operation of the statute.
It may not be inappropriate here to state that the general
nature of a respondentia bond is this : The borrower binds him-
self in a large penal sum, upon condition that the obligation shall
be void he pay the lender the sum borrowed, and so much a

if
month from the date of the bond till the ship arrives at a certain
port, or if the ship be lost or captured in the course of the voy-
age. The respondentia interest is frequently at the rate of forty
or fifty per cent, or in proportion to the risk and profit of the
voyage. The respondentia lender may insure his interest in the suc-
cess of the voyage, but it must be expressly specified in the policy to
be respondentia interest, unless there is a particular usage to the con-
trary. This is settled by authority. A lender upon respondentia
is not obliged to pay salvage or average losses, but he is entitled
to receive the whole sum advanced, provided the ship and carge
;
176 LAW OF USTTBT.
arrive at the port of destination nor will lie lose tlie benefit ot
;
the bond, an accident happens by the defaalt of the borrower

if
or the captain, of the ship nor will a temponary capture, or any

;
damage short of the djestniction of the ship, defeat his claim..

Where bottomry bonds are sealed, andthe money paid, the person
borrowing runs the hazard of all injuries by storm, fire, etc., befoiie
the beginning, of the voyage, unless- it be otherwise provided. As

that, if the ship shall not arrime at mJkch a placej at such a time,
etc.,then the contract hag a beginnijiig from the time of sailing
but if the condition was that if such ship shall, sail from a given
place to any port abroad,, and. shall not arrive there, etc., then,
etc, the condition has not its beginning till the departure {Readeh
Lex. Mero,, 143 ; P(wh., 626).
A lender on bottomry or nespand^ntia is not liable to contri-
bute, in the case of general average, nor is he entitled, to the
benefit of salvage {Park., 627, 629 ; hut vide Marshal on Insu-
ranoej. oh. 6, liooh 2).
These are principles pertaining to bottomry and respondentia
bonds, and are fully explained in works upon shipping and insu-
rance and it is quite obvious that such transactions, when entered
;
into, ingood faith, cannot be considered usurious, for the want of

certainty, which characterizes a case of usury.
These stat6m.ent8 with, respect to bottomry and respondentia
bonds seem paritinent, in tfcis place ; but the general subject will
be more, appropriately discussed, when the law of maritime loans
shallbe considered.
In the State of Massachusetts, an early case came before the
Supreme Judicial Court, in, which it appeared that the defendant
gave the plaintiff a bond for a loan of money, to use at bottomry
on a. ship and: her freight, during the term of three years, at the
interest of twelve per cent per anmim ; the defendant was to pay
over to the plaintiff^ from time to time, half of the gross earnimrs
of the ship, and to make other payments if he chose, in part sari.-;
faction of the bond, and the interest was to cease immediately n,
the amount of principal so discharged and the plaintiff was tc ;
retaiui all payments made to him, whether the ship should be lost
or not and the freights were to stand hypothecated for only the
;
balance which should at any time remain unpaid and at or before ;
the end of the three years the defendant was to pay the sum
remaining due, with the interest, deducting, however, such sums as
TRANSACTIONS NOT USURIOUS. Y!l
the plaintiff would by law have been, held topay for any general
average or partial loss which should happen during the three
years, etc., etc. ; and if the defendant fulfilled these conditions
the bond was to be void. The defendant also gave the plaintiff a
mortgage on real which was to be void if the defendant
estate,
performed the conditions of the bond. An action pf debt was

brought for the penalty of the bond, and the defendant interposed
the defense of usury. The counsel for the defendant insisted that
the instrument was not a bottomry bond, because the payment of
the whole money depend upon the contingency of
lent did not
the ship's performing a particular voyage or at all events, the
;
whole amount of money was not to be at risk during the whole

time and because, in addition to the hypothecation of the ship,
;
the payment of the principal, with interest at twelve per cent, was
made certain by a mortgage of real estate, by an assignment of
the earnings of the vessel, and by personal security. But the
court held that the bond was a lawful contract and not usurious ;
for if the ship had been lost at any time during the three years,
the plaintiff was to lose all the money which should be then due
on the bond. Putnam, J., in delivering the opinion of the court,
said " It is argued that the payment of the money borrowed is
:
secured in such manner as to make it a certainty that the plaintiff

would receive his money, with twelve per cent that it is secured;
by a mortgage of real estate, as well as by a mortgage of the ship,

and an assignment of half the freight and earnings for the term
of the loan and it is further objected that the loan is upon time
;
and not for a voyage, as it is usually made. But the answer to

these objections is, that if the ship should be lost within the time
of three years, for which the money was lent, the plaintiff was to
lose all the money which should then be due on the bond.
It is the essence of the contract of bottomry and respondentia,
that the lender runs the marine risk to be entitled to the marine
interest. The rate of interest and the manner of receiving the
payment of what may become due upon such contract are to be
regulated by the parties. These considerations are not to be
regarded by the court, excepting only to ascertain whether they
were colorably put forth to evade the statute against usury. "We
do not see anything in the facts which would warrant that con-
clusion. If the ship had been lost immediately after she sailed,
it is perfectly clear that the plaintiff would have lost all bis
33
178 LAW OF USURY.
money" {Thomdike v. Stone, 11 Pich. B., 183, 187). Thi»

decision was pronounced over forty years ago, and when usurious
contracts in that State were void- by statute, so that it may be
regarded as a fair exposition of the law upon the question involved.
And it may be added thait it has often been said by judges, both
in England and this country, that these maritime contracts ought
to be treated with great favor by the courts. The obtaining money
on bottomry bonds, especially in foreign ports by the master, is
often absolutely necessaiy, in order that the vessel may be repaired

and proceed on her voyage. And at home, the owner may often
be obliged to pledge his ship, in order to fit her out for sea, and
put her in a condition to become available. The true definition
of a bottoniry bond, according to Mr. Justice Story, " is a contract
for a loan of money on the bottom of the ship, at an extraordinary
interest upon maritime risks, to be loaned by the lender for the
voyage, or for a definite period."
The same principle of hazard exempts from the charge of usury
those contracts which are denominated post obits. These are
transactions in which the borrower, in consideration of a sum of
money paid instcmter, assumes to give the lender a larger sum upon
the death of some particular person or persons. Contracts in the
form of &post obit have been recognized as binding obligations,
both in this country and in England, from a very early period.
And though, in some cases, it has been said that a post obit bond
is a security of a questionable nature, and in point of fact there
are instances in which the courts have relieved against such bargains,
yet it does not seem that they have ever been considered as usuri-
ous, however gross and extraordinary they may have been but ;
merely looked upon as unconscionable bargains, against which

relief can be obtained in a court of equity alone.
In a very early case in the English courts, the question was fully
presented, and the doctrine was sanctioned by the court. The
defendant had agreed with the plaintiff, who was to have an estate
fall to her after the death of two old women, to give her £350
in consideration of being paid£T00 at the death of the two women,
and the was to secure this £Y0O on a mortgage of her
plaintifE
reversionary estate. It happened that both the women died
within two years after the transaction, and a bill was filed to
obtain relief against the bargain. The question was submitted
without, discussion, except that a single case was cited, where
;
TRANSACTIONS NOT VSVBIOJJS. 179
relief was given in a similar case to the one at bar only the ;
plaintifE in that case had been prevailed upon through his neces-
sities. Lord Keeper North said " I do not see anything ill in
:
this bargain. I think the price' was the fair value, though it hap-
pened to prove well. Suppose these women had lived twenty
years afterward, could Lloyd (the defendant) have been relieved
by any bill here ? I do not believe you can show me any such
precedent. What is mentioned of the plaintiff's necessities, is in
all other cases. One that is necessitous must sell cheaper than
those who are not. If I had a mind to buy of a rich man a piece
of ground that lay near mine, for my convenience, he would ask
me almost twice the value; So where people are constrained to
sell, they must look to have the fullest price. As in some cases
that I have known, where a young lady that has had £10,000 por-
tion, payable after the death of an old man, or the like, and she in
the meantime Tjecomes marriageable, this portion has been sold for
£6,000 present money, and thought a good bargain too. It's the
commpn case, pay me such interest during my life, and you shall
have the principal after my decease " {Batty v. Lloyd, 1 Vern. B.,
141). It does not appear that this reasoning of Lord North has
ever been contradicted, at least not in the English courts, if it ever
has been in any of the courts of this country.
In a much High Court of Chancery of England,
later case in the
the same doctrine was laid down. John Spencer, in 1738, was pos-
sessed of an income of £7,000 per annum, and a large personal estate
besides and having contracted a debt of £20,000 to several per-
;
sons, mostly tradesmen, by whom he was pressed, and which he

was desirous to pay off, proposed to borrow money, and particu-
larly a sum of £5,000, for that purpose. As he had a well-grounded
expectation of a great increase of fortune on the death of his grand-
mother, the Duchess of Marlborough, if he survived her, he
resolved to contract thereon. He was above thirty years of age

originally of a hale constitution, but impaired ; and although after-
ward he lived more regular, yet he was addicted to several habits
prejudicial to his health, which he could not leave off. The Duchess
was seventy-eight; of «- good constitution for her age, and careful
of her health. Spencer publicly proposed that if any one would
lend him £5,000 he would oblige himself to pay £10,000 at or soon
after the death of his grandmother, if he survived her, but to be
totally lost if she survived him. The. proposition was rejected bv

180 I^-AW OF USURY.
several knowing persons as not sufficiently advantageous, but was

finally acceptedby the defendant, and a bond of £20,000 condi-
tioned to pay £10,000 was given on those terms. She lived six
years and three months; he survived her one year and eight
months. About two months after the old lady's death, Spencer
executed to the defendant a new bond, in place of the old one, in
the penalty of £20,000 conditioned for the absolute payment of
£10,000 at or before April following, and executed also a warrant
of attorney for contessing judgment thereon, which was afterward
entered. After his death the defendant sued out a sci/re facias
against his executors for an execution, and they resorted to the
High Court of Chancery for an injunction and for relief on pay- i
ment of £5,000, with interest from the time of advancing it, on the
ground, among other things, that the transaction was usurious.
The case was elaborately and ably argued before Lord Hardwicke,
Lord Chancellor Sir "William Lee, Chief Justice Sir John
; ;
Strange, Master of the Eolls Sir John "Welles, Chief Justice, and
;
Burnett, Justice and it was unanimously held that the agreement

;
was not usurious. Burnett, J., said " Upon the state of this case, :
three points are made. First, that the original contract is usuri-
ous, contrary to the statutes, as being a gvo&ier premivmi than the
law allowed and if so, the new security wiU fall to the ground as
;
well as the contract itself. * * * As to the first point, whether

the loan of £5,000 to be paid £10,000 on the death of the Duchess
if he survived her, but nothing he died before her, is usurious,
if
or a mere I hope I may be excused in

casual, contingent bargain ?
calling it a loan because, although in a case where the capital is
;
not in all events to be paid, the word may be improper in courts

of law, this court at least has adopted the use of that word in
respect of a mere contingent bargain, that of hoUomry. If this
contract be usurious, it must be either because it is contrary to
express words of the statute, or an evasion out of it. * * *

To make a contract usurious within the express words of the sta-
ttite, the reward must be taken for forbearance or giving a day of
payment, and whatever shift is used it will be usury; but not
within the statute when it is it was a sum
otherwise, if in truth
advanced by way of loan, and the reward in truth given for for-
bearance, no shift will prevail. * * * If, therefore, a man
gives or lends money, not to be paid if the event should be one
'?ray, but double if the other,, and it is uncertain whiqh way it will
;
TRANSACTIONS NOT USUMIOUS. 181
happen, it is not within the statute, for the reward is given for the
risk, not forbearance ; but if under color of such a hazardous bar-
gain the real treaty is for a loan, with a usurious reward for that
loan,and to evade the statute the contingency inserted is of little
moment, being no ingredient between the parties, the court or
jury on the whole may pronounce such a contract usurious, not-
withstanding the color of contingency, if they are satisfied the
reward is given for forbearance, not for the risk as in the adding a ;
single life, which is a healthy life, if that life should survive half a
year : might as well add a contingency if any one of six
so they
'persons was alive at the end of six months and one of the cases is,
;
if any one of these persons is alive at that time. The intent of the
bargain is the material thing if that was borrowing the money,
:
it is within the statute, whatever colorable contingency inserted and ;
*
this is the sense of all the resolutions in the several cases. * *
But when the principal was fairly and truly put in hazard, and
such as none would run for the interest the law allows, there is
no case where it has been held within the statute. The slightness or
reality of the risk seems to be the only rule directing the judgment
of the court {Bedmigfield v. Ashley, Or. E., 741 ; cmd Long v. m
Whwrton, 3 Keb., 304), which, though inaccurately reported, seems
to me good law. I cannot see two contracts bearing a greater
similitude than this and iottomry. A life may be insured, so may
a ship, which may sink the day after, and so may the party die
one is as much an adventure as the other. .* * * On the
whole, therefore,! am, of opinion that this is not a contract founded
in its origin upon usury, but a contingent bargain, and consequently
within the Express words or intent of none of the statutes of usury."
Sir John Strange, Master of the Rolls, said " The questions upon :
which I am to offer my advice are three 1st. Whether the ori^nal

:
advancement of the £5,000 in the manner as deposed by Mr. Black-

man, and disclosed in' the defendant's answer, and the bond taken
upon it, are to be considered as usurious, and consequently void in
point of law. * * * As to the first, I concur in opinion that
this is not an illegal agreement inade void by the statute of usury.
* * * The repayment of the money advanced depended on a
contingency, which, happened one way, the whole was totally
if it
lost. During the pendency of this, no interest or profit could

accrue to the defendant, but a mere wager or bargain upon contin-
gency which died first so that the whole was at hazard. * * *
;
182 i^^ OF VSUR7.
Whether a hazard or not is considered as the rule for determining

whether a bargain or a loan. I am of opinion, therefore, this bond
does not come within the statutes of usury, and cannot be declared
void at law thereon."
The lord chancellor said " As three points have been properly-
:
made at the bar, it is necessary to say something to each. The

first is a mere question of law upon the statute of usury and on
the rules of law, and the same as, in a court of law, if an action
had been brought on the bond, and the whole matter had been
disclosed in special pleading. If I had even now a doubt concern-
ing it, I should have held myself bound by the opinion of the
judges as a matter within their conusance, in like manner as if
I had sent this to be tried at law in which case, the court always
;
decrees consequentially to the trial. But I have no doubt about

it and concur in opinion. * * * Consider the result of the
;
cases cited on the statute of usury, which I will not- repeat, but
only deduce natural and proper inferences from them. First, if
there is a loan on contingency, in consideration whereof a higher

rate of interest than the law allows is contracted for forbearance,
if the risk goes only to the interest or proBmiwm, and not to the
principal also, though real and substantial risk_ is incurred, it is
contrary to the statute ; because the money lent is not in hazard,

but safe at all eventsand no regard is then had whether the con-
;
tingency is real or colorable. * * * Next, if the contingency

extends to both, and there is a higher rate than the law allows,
regard is had whether a iona fide risk is created by the contin-
gency, or whether only colorable; for, if so, courts of law hold it
contrary to the statute, because an evasion to get out of the

it is
statute, which is prohibited by the law itself. * * * But

where the contingency has extended to principal and interest both,
and not colorable only, but a fair and substantial risk is created by
the whole, it takes it out of the statute ; though called a loan, it is
considered as a bargain oi* chance, and differs little from wager.
On this depends the case oHottom/ry / for I agree that the approv-
ing thereof is from their being fair contracts on a real hazard, and
not that they concern trade ; though trade and commerce is taken
into consideration, but not alone relied on to support usury, for
that cannot be" {Chesterfield \. Jmissen, 2 Fes. R., 125, 141-143,
146-148, 153, 154).
In a still later case before the lord high chancellor, post obit
;
TRANSACTIONS NOT USUBIOVS. 183
bonds were established, though upon terms of gross inequality, on

the alleged ground that such securities are not liable to be impeached
for usury (
Wheaton v. May, 5 Ves., Jr., R., 27). And in the
Court of Common Pleas of England, at an early day, contracts of
this description were recognized as lawful and binding, although
the court required strict practice in proceedings relating to them,
for the alleged reason that a post obit bond is a security of a doubt-
ful nature. A motion was made to enterup judgment on a war-
rant of attorney, on an affidavit stating that a bond for £1,800
was given by the defendant to the plaintiff in the year 1780, condi-
tioned for the payment of £900, in consideration of £400 advanced at
the time of the execution of it, on the death of the defendant's father,
in case the defendant should survive, together with the warrant
that the father died in September, 1788, and the son was still living.
The court said that " in common eases, where judgment has not been
entered on a warrant of attorney within a year and a day from that
was necessary to apply to the court for leave to enter it.
date, it
As was a post obit bond, a security of a questionable nature,
this
which had been often disputed with success, leave to enter up judg-
ment ought not to be granted without a rule to show cause. If
judgment be entered immediately on giving the warrant, or within
a year and a day after, transactions of this sort may probably be
brought to the knowledge of the family of the obligor, and a guard
raised against fraud and imposition. But if the obligee waits till
the death of the father or relative, the court will prevent his hav-
ing immediate execution, by which he might force the obligor to
submit to such terms as he should think proper to impose, and will
require him to give due notice of his intention." For the reason
stated in the opinion of the court, nothing was taken by the motion
{iMsJvmgton v. Waller, 1 H. Black. R., 94, 95).
In an early case in the Court of King's Bench of England the
question was presented, and z,post obit was sanctioned by the court.
The action was upon a memorandum in these words : "Memoran-
dum. In consideration of two guineas received of Aaron Lamego,
Esquire, etc., I promise to pay him twenty guineas upon the demise
of my present wife, Anne Grould." The only question made was
whether the contract was usurious, the woman, at the time of
making it, being then seventy years of age. It was argued by the
plaintiff's counsel that it was not ; that there was no forbearance,
nor any certainty of receiving either principal or interest ; that if
184 ^^W OF VSDRT.
was a mere contingency. Lord Mansfield stopped him, under a

doubt how it was possible to eome at the question of usury, saying:
" Here is nothing at all stated about the loa/ii ai money ; it might,
for aught that appears to the contrary, be a vol/wnta/ry gift, to be
made to him upon this event.The matter of usury was never
thought of at the Mr. Justice Denison said " We cannot
trial." :
intend this to be a usurious contract, which is a crime. * * *

It is z, foolish bargain ; but not usurious. Here are no facts stated
upon which we can say it is usurious" And Mr. Justice Wilmot
added, that " ^'e.prue distinction was laid dotm in that case in Ore.
Eliz., 643, between a real bona fide wager, not at all intended as a-
loan, and a transaction which is riaWy a usurious loWn,. but dAs-

guised as a wager, with intent to have a slvift " {Zamego v. Gould,
2 Bwr. B., 715).
So where A., at B.'s request, advanced him £200, and took his
warrant of attorney for payment as follows: £100 at Christinas,
1829, if both should then be living; £100 at Christmas, 1830, if
both should be living then and £100 at Christmas, 1831, on the
;
same condition the court, on motion to set aside a judgment on

;
the warrant of attorney, refused to interfere, on the ground that

there was a risk of the principal, the contingency being, if either
of the parties happened to die. Sir James Scarlett argued for the
plaintiff that the bargain was in the nature of a post obit bond,
which is not illegal, however hard the terms may be that the ;
principal sum was in jeopardy, and the risk considerable; that this
was a common way of doing business in the city, which became
material when the question was whether the interest was a real
one or only color; that the mere circumstance of the defendant
having asked for a loan in the first instance was unimportant, as
the contract ultimately made must determine the real nature of the
transaction. The attorney-general, contra, did not contest the
general principle in respect to post obit bonds, but argued that on
the face of the transaction it was plainly a cbveir for usury. Lord
Tenterden, C. J., said " : We do not think this a case in which the
court can interfere. There certainly was a risk of the principal.
The contingency was if either of the parties happened to die"
{FUght V. Chaplm,, 2 Bam,. t& AdoTph. R., 112 S. O., 22 Erig. ;
C. L. S., 38). And so also where the annual payments to be made

on annuity (exceeding five per cent on the sum advanced) were
secured upon land', and the principal sum by a policy on the life of
;;
TRANSACTIONS NOT- USUBIOUA 185
one of the grantees, with a covenant for paytnent of the annual

premium, the English Common Bench held that the transaction
was not usurious, the principal being still placed in some degree in
jeopardy {HowMns v. Bennet, 7 G. B. \_N. /S.] B., 507). And in
an early wager between two, to hive £40 for £20, if one be
case, a
alive at such a day| was held not to be usurious {Button v. Bown-
ham, Gro. EUs.-, 643). In many of thfe States, however, contracts
of wager are declared void by statute but such is not universally
;
the law.
Upon the same priiiciple of contingency or hazard, where per-
sons are actually in partnership, an advantage to be taken out of
the trade may be measured in any way agreed on without subject-
ing the arrangement to the charge of usury, for the money is not
laying at interest, but employed in making profit, subject to losses
and although one partner iretiresj still if he donUniies Ucuble to ie

sued, the agreement for such advantiage cannot be usurious. The
following case in the Court of King's Bench of England was
decided in conformity to this prihcij>le': The action was brought
oh a bond in the penalty of £200 conditioned for the due perform-
ance of certain articles, which articles recited that Mary Morisset
had leilt Daniel Bang the sum of £100, to be repaid to her at the
end of four years without iMerest; but. in consideration that the
saidDaniel King, his executors and administrators, should find
and provide for Mary Dubois', daughtei: of the said Mary Morisset,
the obligOr, meat and drink ii the house where he dwelt or should
dwell for four years, if the said Mary Dubois should so long live ;
and that she should, during the said term, board with him, and
that she should be co-partner with Mary King, wife of the said
Daniel King, in the business of a milliner, and should at all times
haiie one moiety of thte losses and charges of carrying on the trade
and that they should be partners, and each do their utmost to carry
on the trade, and should egualh/ dmide the profit / and also that
the said Daniel King shoUd Mge the said Mary Morisset, she
paying him £10 a year; and, At the end of the four years, Daniel
King was to repay the £100 ahdi, in ease of the death of the
;
said Mary Dubois, to pay the principal^ together with loMful inte-
rest for the £100, to the fiaiid Mary Morisset. The only question
in the case was whether the bond was usurious, and the report
states that the Court were extremely clear that the case could not
be within the statute of usury. Lord Mansfield Observed that it
24
186 LAW OF usury:
was impossible to say that King might not receive as much advan-
tage by this partnership as to be worth the consideration; it
m,ight be a very advantageous bargain to King here might be ;
recommendation, skill, labor or other benefits arising to him from

it. He mentioned the case of a man who entered into a private
rent partnership with another, who drew him into a bankruptcy
thereby. So here the plaintiff 's daughter might have been drawn
into a bankruptcy by means of this agreement, which would have
been more severe to her, perhaps, than the penalty of the statute
of usury would be. Mr. Justice Foster and Mr. Justice Wilmot
concurred with the chief justice. They said it did not explicitly
appear whether this was a prudent agreement or not, but it might
be beneficial to King upon the whole ; at least it was not such a
contract as could be adjudged by the court to be usurious within
the statute, and judgment was given for the plaintiff {Morisset v.
King, 2 Burr. E., 891, 892 ; and vide Anderson v. Maltby, 2

Yes. Jr. R., 248). The same general doctrine is recognized by
the American courts. In a case in the late Court of Chancery of
the State of New York, three persons, Leonard, Quackenbush and
Webster, agreed to purchase lands for their joint benefit and ;
they also agreed that Leonard should advance all the money upon
the purchase, to be refunded out of the proceeds of the sale only,
and that he should receive more than one-third of the land or the
proceeds thereof. The court held that the agreement was not a
contract for a loan or forbearance of money, and was not usuri-
ous. Stress was put upon the fact that, by the agreement, Quack-
enbush and "Webster were under no obligation to reimburse Leon-
ard for the moneys advanced, in case there was a deficiency in the
sales of the land foir that purpose; and it was declared, in sub-'
stance, by the chancellor, that the transaction was neither within
the letter nor the spirit of the usury laws {Quackenbitsh y. Leon-
ard, 9 Paige's E., 346).
In the old Supreme Court of the State of New York an early
jase was decided on similar principles. Dagett and Kensett
agreed with Hall that the former should carry on the business of
preserving fresh provisions, and, in consideration of the use of
$600 advanced by Hall, made him their only agent for selling the
provisions in the city of New York for ten years ; agreed that he
should be allowed twenty per cent on all sales made by him, or
through his agency, in that city, or any other place where it might
TRANSACTIONS NOT VSUEIOUS. 187
be advisable to go for the trade, and that he should be entitled to

one-third of the net proceeds of sale, after deducting the twenty
per cent, to apply on the amount advanced, until it should be
liquidated Hall to furnish a repository at his own cost, and be
;
responsible for his sales. The court held that the contract was
not usurious. Savage, C. J., who delivered the opinion of the
court, said " The whole contract seems to me to show the com-
:
mencement of a new adventure, a speculation, in which these par-

ties were separately Interested ; and each was liable to loss, or,
perhaps, might make large profits. * * * The lender here

does not receive his interest and profits besides, nor is his princi-
pal otherwise at risk than as it may depend on the solvency of the

borrowers, or their compliance with their contract. * * * The
lender in and incurs other
this ease renders personal services,
expenses in carrying on the business and, after all this, his com-
;
pensation depends upon an untried experiment in this new

branch of business. It seems to me, then, that this contract is
above all suspicion of usury " {Hall v. Dagett, 6 Cow. B., 653,
656, 657). And, in the New York Court of Common Pleas, it
was held that an agreement to contribute capital for a joint business,
and receive a share of profits in lien of interest, is not usurious,
unless it is a device to cover up the receiving of more than legal
interest {Qwich v. Grant, 10 If. Y. Leg. Obs., 344; cmdvide
(}iVpin V. Enderby, 5 Bwrn.' c& AM. JR., 954).
The same general doctrine, as applied to transactions between,

partners, has been recognizedby the highest courts of England.
The Frugal Investment' Association was formed in 1845, and was
certified under the 4th and 5th Wm. IV, ch. 40. Its objects were
to advance the society's funds to its members, and to accumulate
them, and to divide the profits periodically. The advances were
made by putting up a share at one of the meetings for competition
among the members, and the member offering the highest pre-
mium for it was entitled to that share, and as many more, to the
number of twenty, as he chose to take at the same premium. For
each share so taken he was to pay the premium agreed upon, and
also eight shillings a month for 100 months (during which time
only the society was to exist) as redemption money and, on these ;
conditions,he might have an immediate advance of £100, the full

value of his share, on giving security for the repayment of it,
together with such premium and redemption money he was, also, ;
;
188 LAW OF nauRT.
entitled to participate in the general profits of the society. B

became a member, and obtained an advancement of five shares, at
premiums of £71 for three and £73 for the other two and he ;
gave security as required, and received an advance of £500. B.

died, and, on the society pressing for payment of the moneys so
secured to them, B.'s executrix filed a bill against them, alleging
that the transaction was usurious and, the society illegal, and
claiming to redeem the security on repayment of the £500, with

legal interest only. The court held that the transaction, being
between partners, was not usurious {Buriridge v. Cotton, 8 £!ng.
L. &
Eq. E., 67).
GHAPTEE XV.
TEAJ<rSACTIOirS NOT TJSTJEI0TJ8 OONTEAOTS IN THE FOEM OF AN
ANNTTITT SamE IN FOEM OF A EENT-OHAEGB GENEEAI, CON-
SnjEEATIONS.
Closebt allied in principle to contracts in the form of a ôs^

obitand the like, are contracts in the form of an annuity. A hona
fide annuity for life, or lives, is, according to all the caees, exempted
from the operation of the statute of usury. Annuities are held to
be fair objects of purchase and sale, and there seems to be no
objection on the ground of dealing in these securities, whatever
may be the rates at which they may be purchased or sold. How-
ever the cases on the subject may differ in point of principle, the
conclusion of all is the same. The statute does not reach such
transactions, not only because the principal may be put at hazard,
but because it is never the intention of the legislature to interfere
with individuals in their ordinary affairs of buying and selling, or
other arrangements made with a view to convenience or profit.
The hazard which the grantor of the annuity runs of ever receiving
an equivalent to his principal, says Mr. Gomyn, may serve as a
such an exemption. And, indeed, this he thinks
sufficient cause for
to be the proper footing upon which the decisions ought to be put
the argument which has been frequently urged for them, that they
are purchases, not loans, supported as it is by the common remark
that a previous communication about borrowing will render them
usurious, not being, as he thinks, of so general an application
[Com. on, Umiiry, 43). But the reason of the rule may be discovered
in the cases on the subject, the principal of which will be con-
sidered.
One of the earliest authorities to be found in the reports upon
the subject of annuities was in the Court of King's Bench of
England. An information was brought against one Finch, for that
he had given £566. 13s. ^d. to have annually £130 for and during
twenty-three years, and that the defendants had accepted for the
first year £120, which was more than the lawful interest according
to the rate of £10 in £100, against the form of the statute. Upon
not guilty pleaded, it appeared in evidence that Canfield came to
Finch to borrow money upon interest ; Finch, however, refused to
lend the money upon interest, but said he would let him have it
by way of annuity or rent. Upon this it was agreed between them
that Finch should deliver to Canfield the £566. 18s. ^d., and that
Canfield should assure to Finch the said annual rent of £120 issu-
ing out of his land for twenty-three years. It was held by all the
judges that this evidence did not prove any ofiense' against the
statute, for this kind of agreement is not corrupt ; for it is not a
contract commenced upon a corrupt cause, but an agreement for
a rent, which it is lawful for every one to make. And that, in the
space of twenty-three years, more money might In/ jpossihilAl/y be
gained than at thfe i-ate of £10 in the hundred, is not material for ;
well might one contract for his advantage, if the other would have
agreed to it, as Canfield had, in a manner of bargaining which was
not prohibited by the statute. But it was said that if £12 in the
hundred had been olfered to be paid, and the other had said that
he would accept it, but that this would be in danger of the law,
and therefore he did not like to contract upon those terms, but that
if the other party would assure him an annual rent for his money,
then he would lend it, and upon this an agreement for the rent had
been made, this would have been within the statute but quere as ;
to this last case. However, it appears that if one agrees to receive

£12 in the hundred, and, to evade the law, they agree that a rent
should be paid which exceeds the legal rate of interest, this
vvould be within the scope of the statute, and would be punishable
{FmcKs Case, 1 And., 121,^1. 169,,Temp. HHz.).
The same case is thus reported by Croke, the name of Tcmfield
being substituted for Cwnjteld, which brings out the principle a
little clearer than in the previous report " Information upon the
:
J[gO LAW OF VSUMT.
13 Eliz., ch. 8, § 5, for ueury. It was held by all the justices, upon
evidence to the jury. Finch gave to Tanfield £566 for an annuity

of £120 during twenty-three years. This is clearly no usury when
there was no communication before between them to have any
consideration for the loom of the £566 ; for this annuity was pur-
chased hona fide, without any corrupt intent or bargain and if it ;'
had been £40 per annum for forty years for £100, it had been no
usury, no more than if one for £100 purchased lands worth £40
per. annum.
" Another matter was in this case : That after the grant of the
said annuity of £120 for twenty-three years for the said £566 in
hand paid, Tanfield, for the assurance of the said annuity, infeoffed
Finch of land worth £100 per anrmm to the use of Tanfield and
his heirs, upon condition that if the money were not paid, it should
be to the use of Finch in fee. And all the justices held that it
was no usury for the mortgage was only for the assurance of the
;
annuity. Note. —
In Doctor Goad's case, Nisi, 13 Eliz., in the
Exchequer, in an information for usury, Popham and Plowden
held that if a man giveth £100 for an annuity of ^%i per annum,
this is no usury, for he shall never have his stock of £100 again. _
But Bell, Chief Baron, held clearly, if two men speak together, and
one of them desireth the other to lend him £100, and for the loan
of it he will give him clean £10 per annum, and for an evasion of
the statute they invent this practice, that he shall grant to the other
£30 per cmnAjm, out of his land for ten years, or he shall make a
lease for one hundred years to him, and the lessee shall re-grant it
to him upon condition he shall pay £30 yearly and every year
during the ten years ; in this case, the first contract being corrupt
in fraud of the statute, this is usury, although he never- hath his
£100 again. But if hona fide one buyeth an annuity of £40 for ten
years for £100, this is no usury, if the first communication was not
corrupt " {Tanfield v. Finch, Cro. Eliz., 27 E. ; 26 Elis., ex rela-

tione Edward GoTce).
In another case it was held that if one give £300 to another to

have an annuity of £50 assured to him for 100 years, if he, his
wife and four of his children so long shall live, that this is not
within the statute of usury ; so if there had not been any condi-
tion ; but care is be no communication of
to be taken that there
borrowing of any money before {Fuller's Case, Mich., 29 Eliz.,
4 Leon. E., 208).
;
In another case upon a demurrer, in a replevin for £20 and an

avowry, the plaintiff pleaded in bar that the defendant had given
£100, and for that he granted to him £20 per annum for eight
years annually, as a rent charge ; and after that for two years
more, if three men live so long, and concluded that it was a cor-
rupt deed. And this difference was agreed by the court ; if the
original contractwas for a rent charge, as in the case at bar, it is
not usury, but a good bargain and pennyworth but if the party ;
had come to borrow the money, and then such a contract ensued
by security, that is usury (Dymonds v. Gockerill, JVoy's R., 151).*
The same case,under a different name, appears to be reported

in Browlow. In replevin, the defendant avows for an annuity for
£20 granted for years, payable upon demand, and alleges a demand
the plaintiff demands oyer of the deed, and by the deed it
appeared that for £100 one rent of £20 was granted for eight
years, and another for £20 for two years, if E., E. and T. should
so long live the plaintiff pleads the statute of usury, and sets forth
;
the statute and a special usurious contract. K it had been said to be

upon a loan of money, then it was usury but if it was a bargain ;
for an annuity it is no usury, but this was alleged to be upon a

lending (Cothrel v. Ha/rrvngton, Brawl., 180).
Another case was debt upon an obligation of £300, condi-
tioned for the payment of £20 per annum during the lives of
the plaintiff 's wife and son. The defendant pleaded the statute
of usury and how he came to borrow of him £120 according
; .
to the rate of £10 for every £100 who refused to lend the same,
;
but corruptly offered to deliver £120 to him if he would be obliged

to pay £20 a year during the plaintiff's wife and son's lives ; and
thereupon the defendant entered into the said bond for security
of thepayment of the said £20 a year to them, which is above
£10 per cent, and so the bond supposed to be void
the rate of ;
whereupon it was demurred. After argument on both sides, it

was resolved that this being an absolute bargain in consideration
for thepayment of £20 a year during two lives, and no agree-
ment to have the principal money, was out of the statute against
usury but if there had been any provision made for the repay-
;
* The authority of Noy's Reports has been doubted.And Twisden, Justice, in one case said,
that the book was but an abridgment of cases by Sergeant Size, who when he was a student
borrowed Noy's Reports, and abridged theip for his own use (t Tentr, 81). Still the reports are
often referred to as authority, and it is presumed that the cases are in the main accurately
reported.
;
192 I'-^W OF VSURT.
ment of the principal, although not expressed within the bond, it
had been a usurious agreement and lending within the said statutes.
And of this opinion was the whole court, who adjudged it for the
'
plaifitiff (Fourvtwm v. Grymes, Cro. Jao., 252).
According to another report of the same case, upon its being

urged that it was within the statute, by reason of the one party's
coming to borrow the money, and upon the other's offering to lend
money upon this corrupt communication, and that it had been so
adjudged hy the court ielpw y "Williams, Telverton and Fenner,
judges, agreed that this was no corruption nor usury -within the
statute, but only a contract for a yearly annuity for a certain time,
and for a sum of money ; would have been, if
but otherwise it
there had been any provision made for the repayment of the said
£100 unto him within any certaia time, and in the meantime the
yearly payment of the £20 annuity to continue, had been clearly
a usurious agreement and lending within the statute {Fountain v.
Grymes, 1 Bulstr. B,., 36).
In another ancient case the question was before the court, and
the purchase of an annuity for thirty-nine years and three-quar-
ters, determinable by the parties at the end of four years, was held
not to be within the statute against usury, and was, therefore, a
legal transaction. The facts of the case were these : One Brown
agreed to 'assign to one Duer a lease of a house for forty years for
the sum of £300. Duer not having the money, Drury, by agree-
ment with Duer, paid the £300, took the assignment to himself,
and then let the house to Duer for thirty-nine and three-quarter
years, at a rent of which £30 was payable to. himself. Drury
covenanted that if at the end of four years Duer paid the £300, he
would convey the residue of the term to Duer. Hale, C. J., said
" This is not usury within the statute, for Duer was not bound to
pay the £300 to Drury. * * * It is no more in effect than a
bargain for an annuity of £30 yearly, for thirty-nine and three-
quarters years, for £300, to be secured in this manner, determinable
sooner if the grantor pleases ; but the grantee hath no remedy for
his £300. * * * And so the acceptance of the £7 10s. is not
usury. But if Drury had taken security for the repayment of the
£300, or it had been by any collateral agreement to be repaid, and
all this method of bargaining a continuance to avoid
the statute,
this had been usury " {King v. Drury, 2 Lev. E., 7,
8 23 Ca/r., 2). ;
But one of the best considered of the early cases was that of
Chesterfield v. Jansen, inwhich some very important dicta were

thrown out upon Mr. Justice Burnett
this subject of annuities.
laid down the following rule " Suppose a ma;n purchase an annuity
:
at ever such an under price, if the bargain was really for an annuity,
it is not usury. If on the foot of borrowing and lending money, it
is otherwise ; for if the court are of the opinion, the annuity is not
the real contract, but a method of paying more money for the
reward or interest than the law allows, it is a contrivance that
shall not avoid the statute, by giving the avarice of one kind of
men an opportunity of preying on the necessities of another."
SirJohn Strange said " Some stress has been laid by the plain-
:
tifiPs counsel on the word hand. But I think that concludes nothing
as to the nature of the contract itself, but is a playing on words
only. Every bargain of this kind is a loan even bottomry con- ;
tracts are so, and expressly called loans by act of Parliament. There-
fore it is not the expression, but the nature and intent of the
agreement, which must determine whether this contract be a sim-
ple loan or risk." And Lord Hardwicke, approving of this observa-
tion, goes on to say " A man may purchase an annuity at as low
:
terms as he can, but if besets out at first with borrowing a sum of

money and then turns it into the shape of an annuity afterward,
this is a shift and an evasion to avoid the statutes. It is lawful,
likewise, for a man to sell his goods as dear as he can in a fair way
of sale but if A. applies to B. to lend money, and offers to allow
;
more than the real interest, and B. says no, I will not agree to your
'
proposal on these terms, but I will give you cash or quantity of

goods, and you shall pay me so much at a future time for them
beyond the price I now fix,' and then charge an extraordinary
profit, this is a shift to get more than the legal interest, and is
usurious" {GResterfield v. Jansen, 1 Ath. B., 340, 346, 351).

And stiU another very interesting ancient
. case, involving the
question, was this : Markham, an attorney, at the request of Eobert
Harding, rector of Grafton Eegis, applied to Mrs. Mary Murray to
lay out £130 on the purchase of an' annuity of £20 a year for the
defendant's life, charged on his rectory of Grrafton, returnable by
him at the end of the first five years upon the' payment of £109 2s.
There was no communication with her about a loan, but merely
about the purchase of such redeemable annuity, although Harding,
had mentioned to his attorney (Markham) a wish to borrow £100
25
'
194 . LAW OF USUBT.
or upward. The ease came before the court, and after due delibera-
tion, opinions were delivered.
De Grey, 0. J., said :
" It is essential to the nature of a usuri-
ous contract, that there must be, 1. A loan. 2. That illegal interest
is to be paid for such loan. It is essential to the nature of a loan,
that the thing borrowed is at all events to be restored. K that be
iona fide put in hazard, it is no loan, but a contract of another
kind. * * * Communication covering a loan 'has sometimes
infected the case and tm-ned the case into usury. But then the
communication must be wmiual. Application for a loan is not
such acase, provided the party applied to refuses a loan, and treats
for an annuity, and this more especially when the party applied to
is an attorney and the real seller is ignorant of the whole conversa-

tion. I know no case where even a meditated loan has been hona
fide converted into a purchase and afterward held to be usurious.
To be sure, it is a very strong and suspicious circumstance; but if
the purchase comes out to be clearly a hona fide purchase, it will,
notwithstanding, be good. Inequality of price is also a suspicious
circumstance, especially if very inadequate. But this of itself will
notmake any contract usurious, though it may upon circumstances
make it unfair and unconscientious, and, as such, relievable in equity.
If a power of redemption be given, though only to one side, it is a
strong circumstance to show it a loan, * * * but that alone
will not be conclusive.
Another circumstance is the form of the instrument. If that
imports a loan, and it was so meant, the contract may become
usurious. At the same time, if the transaction be hona fide, the
blunder of an agent shall not make it otherwise. * * * Sub-
sequent acts of parties may also be material evidence of intention,
unless properly cleared up and explained.
In the present case the principal is precarious, and secured only
by the life of a clergyman and his continuing to be beneficed.
The communication concerning the loan was only by application
ex parte to an attorney, who refused it the principal party being
;
totally a stranger to it. The price comes out to be a fair market

price for the annuity, or at least to be very little under it. The
clause of redemption is entirely at the option of the seller, and
affords him an opportunity of purchasing back the annuity at a
price somewhat less than he took for it, in case at the end of five
years he finds by his constitution, etc., he has made a disadvan-
,
tageous bargain. The inaccuracy of the notes in this instrument

shall not vitiate a contract that otherwise seemB to be a fair one.
And the act of the attorney in levying so large a sum in execution

is accounted for by his expressly swearing that he thought he could
have no other remedy for future arrears, after the execution was
once executed. Upon the whole, therefore, I cannot consider this
in the light of a usurious contract."
The other judges agreed in this opinion, and Blackstone added
that he did hot know an where the principal was iona
instance
fide hazarded that the contract had been held usuj-ious. " If the
price be inadequate to hazard, it may be an imposition, and, under
some circumstances, relievable in equity but it cannot be legal
;
usury. In the present ease the principal part of it is clearly in

jeopardy for six years together, and the purchaser cannot receive
back his principal, with legal interest, unless the vendor continues
to live for eight years. And though it is said that he might have
insured at fine ]per cent, jet that can only be done for a single
year at a time. Here he undertakes to be his own insurer for a
period of eight years together " (Murrcn/v. Harding, 2W. Blacks.
E., 859 d, 3 WiU. E., 390).
; .c?.
The foregoing eases are mentioned by Mr. Robert " Buckley

Comyn, in his treatise on the Law of Usury, published in London
in 1817, and, consequently, they are all very early even in the
jurispBudence of England. In these cases annuities came before
the court and were acquitted of usury but in all these early cases
;
they were assumed to be pwrchases, and, in some of them, it was

directly stated that had they been loam.8 they would have been
illegal for, unless there was a loan, the statutes of usury were
;
considered as inapplicable to the transaction.

A modern case in the English Court of King's Bench, involving
the legality of annuities, in which the transaction was sustained,
came before the court in 1830. It was this: In the year 1805
James Stewart and John Crossett Pelham, in' consideration of
£1,000 paid to Stewart, granted an annuity of £120 to John Hol-
land for the term of the joint natural lives of John Holland, Mary
his wife, Mary Ann Holland and Lucy Dalrymple, and the lives
and life of the survivors and survivor of the longest liver of them.
And Stewart and Pelham, for themselves, their heirs, executors
and assigns, within thirty days next after the death of such three
of them, the said John Holland, Mary his wife, Mary Ann Hoi-
196 LAW OF U8URT.
land and Lucy Dalrymple, who should first depart this life, to
insure in some respectable office of insurance in London, for the

use of the said John Holland, his executors, administrators and
assigns, the sum of £1,000, to be paid on the death of the survivor
of them, the aforesaid survivors and, upon the completion of
;
such insurance, to make such assignment of the policy or policies

thereof unto the said John Holland, his executors, "administrators
and be requisite to make over the same and all
assigns, as should
and for his and their sole use.
benefit thereof to him,
The grantors executed also a warrant of attorney to enter up
judgment for £2,000, but no judgment was ever entered up.
This annuity passed through several mesne assignments to
Edward Gregory and Kobert Johnston, who purchased the same
of the sheriff under a writ of venditioni exponas.
In the course of the term of the court, Taddy, Sergeant, obtained,
on the part of Stewart's executrix, a rule nisi to set aside the war-
rant of attorney, on the ground that the same was void for
usury.
Wilde, Sergeant, showed error, and took the ground that there
was no affidavit alleging the same
be a colorable transaction other
to
than a honafde annuity. He argued
that the transaction was no
loan, and therefore there could be no usury that the principal was
;
clearly in hazard that if the two last lives had dropped at once, or
;
the last life had dropped within the thirty days, and before the
insurance had been effected, the covenant would have been of no
avail. So, if the policy had happened to be avoided under any of
the numerous stipulations on the part of the office.
The court called on Taddy to support his rule. He contended
that it was a loan, for the covenant to insure was equivalent to a
covenant for repayment. If the last life dropped during the thirty
days, no insurance coidd have been effected. The covenant, there-
fore, meant that an insurance should be effected within the thirty
days, and during the life of the survivor; The grantor, therefore,
was in a better position than he would have been if he had only
taken a covenant for the repayment of the money, which would
have been clearly usurious ; he had not only the clause of
for here
the policy, but if the partner omitted to effect
it, an action against
the grantor on the covenant to insure, by which he would recover

the sum originally advanced even if the two last lives had dropped
;
at the same moment, the act of God would not excuse the grantor
from his absolute covenant. He could have pleaded no plea but

performance.
Tindal, 0. J., said :
" The question is, whether an advance ol
money under the circumstances now laid before the court comes
within the statute of Anne, or a loan of money on which a larger
rate of interest than five per cent has been reserved. The general
nileis, that there is no loan where the principal is placed in hazard,
because a loan contemplates repayment of the lent and money ;
where there is no loan, it is a matter of agreement between the

parties on what terms the money shall be advanced. In the
present case the hazard was considerable. Suppose the third and
fourth lives had dropped together, how could it be said that there
was any breach of covenant in not insuring at the expiration of the
third, if it could not be ascertained which perished first ? But
suppose the insurance had been effected, there are often clauses in
policies which induce considerable hazard, as if the life insured
were determined by suicide. Upon such a precarious mode of
repayment we cannot say the parties iiitended a loan. The court
is satisfied, on the ground that there is no aflSdavit imputing to the
parties the intention of a loan, showing that the principal has

never been put in hazard." G-azelee, J., concurred in the opinion
of the chief justice.
Bosanquet, J., said :
" I do not think this covenant is such a
stipulation as constitutes the transaction a loan." And Aldersoh,
J., referred to a case where an agreement to pay twelve per cent'
on the amount of the purchase-money of a vessel was held not
usurious, though there was a covenant to keep the vessel insured,
and said it was not distinguishable from the present act. The rule
was discharged with costs {In the Matter of J^cdsh, 1 Bing. B.,
150 ; S. C, 20 £q. C. 8. iT., 81).
And in a very old case, not referred to by Comyn, the principle
governing cases of anniiity is An action of
clearly established.
debt was brought upon an obligation of £300, conditioned for the
payment of £20 per annum during the lives of the plaintiff's wife
and son. The defendant pleaded the statute of usury, and that he
applied to the plaintiff to borrow of him £120 at the lawful rate
of interest, but that he corruptly offered to deliver over £120 to
him if he would be obliged to pay £20 per annum.
The court considered this as an absolute contract for the pay-
ment of £20 per annum during two lives and no agreement bteing
;
jgg LAW OF USUBT.
made for the return of the principal, it was not considered usury.
But, they stated, if there had been any provision for the repayment
of the principal, although not expressed in the loan, the contract
would have been usurious (2 CoMs R., 252). This is a binding
case, and the principle on which it rests does not seem to have been
controverted by modern decisions.
In a somewhat later case in the English Court of Eang's Bench
than that in the matter of Naish, on demurrer to a declaration
framed on a contract which was in terms a purchase of an annuity
for £20 for sixty years for the price of £200, the court held that
they could not infer usury ; that is to say, that the contract was
not on its face usurious.
Lord Denman, C. J., said " It appears to me that the trans-
:
action is not, on the face of it, necessarily void. Installments are

made payable for a long course of years, and interest wiU be due
on all that remain unpaid. The effect of this is a matter of calcu-
lation, upon which the opinion of a jury should be taken. If they
were to find the transaction to be merely a cloak and device for
usury, it would be bad ; but it would be otherwise if they said,
looking to the value of the annuity granted, that the transaction

was a iona fide contract for an annuity. The court cannot deter-
mine this." ,
"1 do not say what a.jury might find, it

Littledale, J., said:
issue were joined on a plea of usury. But we cannot say that the
deed is, on the face of it, usurious. It is clear that the plaintiff,
as he does not receive back his principal, is entitled to more than
five per cent. But we cannot take judicial notice that the money
ultimately received will exceed the principal and legal interest."
Taunton, J., said " For a long time the impression on my mind
:
was the reverse of my present opinion. I accede to the suggestion

of my brother Littledale. The principal money is parted with.
At the end of the sixty years there is an end of both purchase-money
and interest. The creditor is therefore entitled to receive more than
what would be legal interest on a loan of so much. The objection
is that, in the sixty years, this payment of the £20 would produce
more than the principal and interest. But the court cannot judi-
cially calculate the excess ; it is a matter for a jury."
"Williams, J., concurred, and judgment was ordered for the plain-
{Ferguson v. Sprmg, 1 Adolph.
tiff cfe El. B., 576 ; S. C, 28
Eag. a L. E., 154, 156).
TRAKSACTIONS NOT USURIOUS. 199
And by the English' Court of Common

in a recent case decided
Pleas, it was held that where the annual payments of an annuity
(exceeding five per cent on the sum advanced) were secured upon
land, and the principal sum by a policy on the life, of one of the
partners, with a covenant for payment of the annual premium, the
transaction was' not usurious, the principal being stUl placed in
some degree of jeopardy.
Erie, C. J., said : " The point mainly urged on the part of the
defendant was, that this was a usurious transaction. A loan for
more than five per cent interest secured upon land ' is still void
for usury ; but if sum is not secured upon land, the
the principal
usury laws have no application. Here the principal money was
not secured upon land. The parties stipulate for the payment of
an annuity, and the payment of that is secured on the land, but
not the principal. It is said that this is only a cover and device
to evade the usury laws, because the grantors covenant for the
payment of the annuity for a period of sixty years, and part of
the security was an insurance on the life of one of them, and the
grantors contract to pay the premiums, and so the principal is never
put in jeopardy. 'Eo doubt the risk is extremely small ; but it
cannot be said there is none. The insurance

might become office
insolvent, or the policy might become unavailing by reason of some

of the many circumstances by which policies are vitiated. It seems
to me that there is no foundation for the objection. The law pro-
^hibits the securing an advance of money upon land at a higher
rate of interest than five per cent and parties must take care not
;
to violate the law. But it is a misapplication of language to call

a transaction like this a device to evade the law. It is rather a
case where the parties have obeyed the prohibition of the law by
taking a security which is outside of the prohibition." Williams,
J., said :
" As to the last point, that the transaction was void as
being an evasion of the laws against usury, no doubt, in one
sense, granting annuities is ah evasion of the usury laws. But
parties are entitled to evade the law. man is guilty of no A
ofifense who so conducts his affairs as not to infringe an act of Par-
liament. I see no objection to an evasion of the law in that sense.

The usury laws do not apply where the principal is put in jeopardy.
Here the principal was put in jeopardy. Reliance was placed upon
the covenant to insure Bennet's life, as showing that the grantee
incurred no risk of losing his principal. But still there is always
200 i-^W^ OF USUBT.
a risk that the policy may turn out to he unproductive." WiUes,

J., said :
" Then it is said that the transaction was void- on the
ground of usury, inasmuch as this was a shift or device to enable
the parties to obtain greater interest than five per cent secured}
upon land. As an illustration of what has been said by my brother
Williams on this point, suppose a loan of £100 to be contractedt
for, of which £50 was to be received in coals or a hqrse or some
other commodity or chattel intrinsically worth £5 only. That
would be a shift to obtain usurious interest, and would be a case
within the statute. It is clearly established thai; when the prin-
cipal is put in jeopardy, the case is iâ^cted by the statutes
against usury." Keating, J., said " For the reasons ali;eady given,
:
I entirely concur in the judgments pronounped by my lord and

two learned brothers." Judgment accordingly {Sowkms v. £enr
net, 7 J. Scot^s B., N. K, 50T"; S. C, 97 Mig. C. L. E., 507,
551-554).
The English authorities upon the subject of annuities have fre-
quently been reviewed by the courts of this country, and the doc-
trine of the cases uniformly approved. The question underwent a
thorough examination in the Supreme Court of theXTnited States,
forty years ago, and the general principles applicable to, and gov-
erning such cases, clearly laid down. One Scholfield, being. seised
in fee of four brick tenements and lots of ground in Alexandria, in
consideration of $5,000, granted to one Moore an anmîty or
yearly rent-charge of $500, to be issuing out of and charged upon
the houses and ground, and covenanted that the same should be
paid to Moore, his heirs and assigns forever thereafter, with the
right to distrain in case of non-payment of the same. In the deed
granting the rent-charge, Moore, the grantee, covenante<} that, at
any time after five years, on the payment of $5,000, with all arrears
of rent, he, Moore, would release the said, rent-charge, and the
same should cease. Scholfield covenanted to keep the buildings
in repair, and that he would have them fully insured against fire,
and assign the policy of insurance for the protection of Moore, the
money from the insurance to be applied to the rebuilding or repair-
ing the houses, if destroyed or injured by fire. Afterward, Schol-
field, by deed of bargain and sale, conveyed to one Lloyd, the
plaintiff in error, the houses and lots of ground, subject to the;

payment of rent to Moore, who, since the same conveyance, had
been seised of the same. The rent being unpaid, Moore levied a
:
;
distress for the same, and Lloyd brought replevin ; and the defense
to the claim for rent set up to the recovery was, that the trans-
action was usurious, and the deed granting the rent-charge wa§, by
the laws of Virginia, which controlled the case, absolutely void.
The case came up on demurrer to the plaintiff's plea of usury to the
defendant's cognizance justifying the distresa under the indenture
from Scholfield to the defendant. Upon the demurrer the Circuit
Court rendered judgment for $1,000, the double rent claimed in
the cognizance, and the plaintiff brought error to the Supreme
Court, where the judgment of the Circuit Court was reversed,
although was declared that the transaction between Scholfield
it
and Moore was not UBurious on its face. Mr. Joi&tice McLean
delivered the opinion of the court, and, among other things, said
" Assuming the position that the pleas contain no averments which
extend beyond the terms of the contract, the counsel in support of
the demurrer have contended that no fair construction of the deed
wiU authorize the inference that it was given on a usurious con-
sideration. It was the purchase of an annuity, it is contended
and though the annuity may produce a higher rate of interest than
six per cent upon the consideration paid for iti, yet this does not
taint the transaction with usury. If the court were limited by the
pleas to the words of the contract, and it imported to be a purchase
of an annuity, and no evidence was adduced giving a different
character to the transaction, this argument would be unanswerable.
An annuity may be purchased like a tract of land or other pro-
pertyj and the inequality of price will not, of itself, make the
contract usurious. . If the inadequacy of consideration be great, in
any purchase, itmay lead to suspicion, and, connected with other
circumstances, may induce a Court of Chancery to relieve against
the contract. In the case under consideration, $5,000 were paid
for a ground-rent of $500 per annum. This circumstance, although
ten per cent be received on the money paid, does not make the
contract unlawful. were a iona fide purchase of an annuity,
If it
there is an end to the question and this condition, which gives the
;
option to the vendor to repurchase the rent by paying the $5,000

after the lapse of five years, would not invalidate. * * * The
right to repurchase, as also the inadequacy of price, would be cir-
cmnstances for the consideration of a jury. * * * Scholfield,
it appears, was under no obligation to repurchase the annuity ; but
he had the option of doing so after the lapse of five years, which
26
;
202 i^"^ OF USURY.
is a strong circumstance to show the nature of the transaction.
The purchase of an annuity, or any other device used to cover a

usurious transaction, will be unavailing. If the contract be infected
with usury, it cannot be enforced. When an annuity is raised
with the design of covering a loan, the lender will not be exempted
by from the penalties of usury (3 Bos. <& Pul., 159). On this
it
point, there is no contradiction in the authorities. If a party agree
to pay a specified sum exceeding the lawful interest, provided he

do not pay the principal by a day certain, it is not usury. By a
punctual payment of the principal, he may avoid the payment of
the sum stated, which is considered as a penalty. When a loan is

made to be returned at a fixed day with more than the legal rate
of interest, depending upon a casualty which hazards both prin-
cipal and interest, the contract is not usurious ; but when the inte-
rest only is hazarded, it is usury. Does the decision in this ease,
as has been contended, depend upon a construction of the contract ?
Are there no averments in the pleas which place before the court
material facts to constitute usury that do not appear on the face of
the deed ? mere construction of the
If the court were limited to a
contract, they would hare no difficulty in deciding that the ease
'
was not strictly embraced by the statute {Lloyd v. Scott, 4 Peter^
'
B., 205, 224, 225). The court were of opinion that a case of usury
was made by the facts stated in some of the pleas demurred to
hence the judgment of the Circuit Court was reversed, and the
cause remanded, with instructions to overrule the demurrer to such
pleas, and permit the defendant to plead.
Thecase was then got in readiness, and came on for trial before
the Circuit Court and a jury, when evidence was taken, and the
questions submitted to the jury under proper instructions by the
court, and a verdict found for the plaintiff, adjudging the trans-
action to be usurious. A judgment was entered on the verdict,
and the defendant sued out a writ of error, and the case came a
second time before the Supreme Court. On this last occasion the
case was most thoroughly argued, and aU of the authorities reviewed,
and an uncommonly able opinion was pronounced by Mr. Chief
Justice Marshall, in which he came to the conclusion that it was
proper to submit the case, with all its circumstances, to the con-
sideration of the jury, and
have the question, whether the con-
to
tract was, in truth, a loan, or the iona fide purchase of an annuity,
to them, but he was of the opinion that the court below erred in
admitting Scholfield as a witness for the plaintiff; and therefore

which the court unanimously
the judgment should he reversed, in
concurred, and the cause was remanded for a new trial {Scott v.
Lloyd, 9 Peters' B., 418).
The case of Scott Lloyd is technically one of rent-charge,
-7.
instead of an annuity, and yet, so far as the question of usury is

involved, it is the same as the case of an annuity. Strictly speak-
ing, an annuity is not a ground-rent, although it is frequently con-
founded with it. A rent-charge is a burden imposed upon and
issuing out of lands, whereas an annuity isa yearly sum chargeable
only upon the person of the grantor. But, as before remarked,
the same facts which will constitute usury in the one case will
equally affect the other, and hence, in considering the question of
usury, the two are treated as precisely alike. To purchase land
under its real value is clearly not usury. So neither is it usury to
purchase a charge upon such land for less than it is really worth.
And however rent-charges and annuities may differ in other
respects, the one must, in this instance at least, stand upon the
same ground as the other. Aspurchases and " good pennyworths,"
they may be valid (
Vide Howe v. Bdlaseys, 1 Sid. JR., 182).
It wiUbe observed that the courts have sometimes used language

to the effect that the mere circumstance of inequality of price will
not vitiate the sale of an annuity, provided there be no communi-
cation for a loan, and the question naturally arises as to what is
meant by this Most annuities are granted only to
communication.
raise money to supply the necessities of the grantor, and if it is
meant that a communication of the necessities to the proposed
grantor would render the transaction usurious, it has been very
justly said few annuities would stand against such an interpreta-
tion. And the courts uniformly declare that a honajlde contract
for an annuity can never be usurious where there is no agreement
for repayment of the principal. So the obvious meaning of the
expression is, that the annuity shall be absolutely sold, without any
stipulation for the return of the principal, and that it shall not be
intended as a means of paying interest until such principal is
returned. But the rule will be more apparent in the examination of

cases held tobe usurious, notwithstanding the transaction assumed
the form of an annuity.
As to the risk, which must be considered as the very life of the
annuity, while it is not a downright purchase, it can only be said
;
y
204 LAW OF ususr.
that where it is real and bona fide, the annuity will be valid ; and
where it is weak and colorable, the annuity must fall. No precise
and certain rule as to what risk will suflSce, can be laid down, as
*very case must entirely depend upon its own circumstances.
It has been said that the insurance of the life upon which the
annuity is granted destroys the risk during the time that such
insurance contiaues. Supposing, however, the annuity to have
been good in its origin, there is no good reason to suppose that the
subsequent indemnification of the grantee would vitiate it, espe-
• cially as such indemnification must be continued from year to year,
and the legality of the transaction might be continually detected
and re-established, according to the annual precaution or neglect
of the annuitant. But it might be different where a part of the
original oontraot is, that such an assurance should be made by the
grantor. Tet even in that case, supposing it be conceded that the
insurance effected on the life of the grantor by the annuitant will
not render the annuity usurious, it would be difficult to contend,
as Mr. Comyn well says, that it would be rendered usurious by an
insurance for the benefit of the grantee effected by the grantor
for as in both cases it is in fact the grantor who pays both the
annuity and insurance, it seems hard to say that the usury is
incurred by his paying them in two sums, where it would not

have existed if he had paid them in one gross sum {Com. on Usury
69, 70).
CHAPTER XVI.
TEAIfSAOTIONS NOT trSTJEIOTTS INTEEEST IN THE NATURE OF A PEN-
AXTT, OE WHEEE THE SAME MAT BE AVOIDED BT PEOMPT PATMENT
OP THE PEESrOIPAL TEANSACTIONS WHEKB STOCKS AHE LOANED OB
TRANSFEEEED — SALES OE DEPEECIATED SEOUEITIES.
It has been several times affirmed that whenever the principal
and iaterest, or the principal only, are in hazard, it is not usury to
take more than the rate of interest, prescribed by law ; but that
where the interest alone is put in hazard, while the principal is
secured, the contingency will not exempt the agreement- from the
effect of usury. One exception, however, has been made to this
latter rule, and that is, when the exorbitant profit is reserved in
TRANSACTIONS NOT VSXTRIOW. 205
tte nature of a penalty to be paid upon some default, which the

borrower may avoid by the payment of the principal, and so defeat
the interest. The rule was thus stated by a distinguished EngHsh
judge :
" KI secure both interest and principal, if it be at the
will of the party who is to pay it, it is no usury as if I lend to one
;
£100 for two years, to pay for the loan thereof £30, and if he pay
the principal at the year's end he shall pay nothing for interest,
this is not usury ; for the party hath his election, and may pay it at
the first year's end, and so discharge himself" {Roherts v. Tre-

nayne, Oro. Jao., 509), But an examination of the cases involv-
ing the principle will the better illustrate the rule. The cases are
numerous, both ancient and modern.
One of the early cases in the time of Lord Coke was this:
Thomas Woodhouse and A. G., Esquire, mutually agreed that in
consideration of £100 given by the said A. G. the said
Thomas would grant to the said A. Gr. and his heirs the
rent of £20, imder condition that if the said Thomas should
pay to the said A. G. the £100 on the 17th of July, 1580,
then the said rent should cease. The court said it was a
plain bargain and purchase conditional of such rent, and no
usury. It was in the election of the grantor to have paid the
£100 and to have frustrated the rent, so that the grantor (as the
nature of usury is) was not assured of any recompense for the for-
bearance of £100 for a year, and the £20 per annum, is but a pen-
alty to the grantor, and assurance to the grantee, for the payment
of the said £100. But it was resolved by the whole court, that if
it had been agreed between the grantor and the grantee that, not-
withstanding such power of redemption, the £100 should not be

paid at the day, and that the clause of redemption was inserted to
make an evasion out of the statute, then it had been a usurious
bargain and contract within the statute. For if in truth the con-
tract be usurious against the statute, no color or show of words
wiU serve, but the party may show it, and shall not be concluded or
estopped by any deed, or any other matter whatsoever for the ;
statute gives averment in such case {Burion^s Case, 5 Coke's S., 70).
In another early case, a copyholder mortgaged his estate, .and it
was agreed that if the mortgagor did not pay the money at the day,
he would give the mortgagee £60 more, or £6 per annum, until
he paid the £60 and the court held that there was no usury in
;
the transaction, but- only notnmepcemB {Oliver v. Oli/ver, 2 Eoll.

'
206 LAW OF USURY.
E.J 469). And in another case it was said by Holt, Chief Justice:
" If I covenant to pay £100 a year hence, and, if I do not pay it,
to pay £20, it is not usury, but only in nature of a nomine pmnm "
[Ga/rnet v. JPhrot, Camp. B., 133; cmdvidelîohollsY.Maynardy
3 Atk. E., 520).
In Brooke's Abridgement it is said that if a man for £100 sell
his land upon condition that the vendor or his heirs repay the same
before Easter next, or the like, then he may re-enter, this is not
usury for he may repay it the next day, or any time before Eas-
;
ter, and so there is no sure gain or profit of the land but, on the ;
other hand, if there be a condition that the vendor shall repay the
money on a certain day a year or two afterward, paying interest in
the meantime, this is usury, for then there is certain profit and it ;
would be the same if the vendee should lease the land to the ven-
dor under the like terms (2 Bro. Abr., 326, Utle Uswrie). This is
a very fair illustration, and brings out the principle and presents
the distinction in accordance with the early cases ( Vide Skep.
Touchst., 62 Brown v. Barkham,, 1 P. Wms. E., 652 and Tur-
; ;
ton V. Benson, 2 Vern. E., Y64; S. O, 10 Mod. E., M5).

In these cases, it will be observed, the principal was never haz-
arded, but it was only the profit or interest upon the principal of
which the lender could be deprived by the act of the borrower
In the case of 2%e King v. Drv/ry, referred to in the previous
chapter, the principal was never secured, and might never have
been repaid but still it was in the debtor's option to defeat the
;
interest by the payment of the principal. That case, therefore,

illustrates the rule that there can be no usury when the exorbitant
interest may be avoided by a prompt payment of the principal at
the option of the borrower, as well as the rule that there can be nc
usury in the hona fide purchase of annuities. Other ancient cast'
may be referred to, which are ranked in the same class.
One case much relied on in the Court Bench of Eng
of King's
land. was this: The action was brought against the defendant for
goods sold and delivered at three months' credit, veith an agreement
at the time of the sale that in case the money was not paid at the
end of three months, then the defendant should pay to the p]a:uitiff
a halfpenny an ounce per month for so long a time as the money
should remain unpaid. At the trial it was proved that this allow-
ance was the general usage and practice of the trade, with one or
two exceptions only but upon calculation it appeared to exceed
;
the legal rate of interest. Upon its being objected that the con-
tract was usurious, Lord Mansfield said that he thought there
seemed to be weight in the usage of the trade, and in the circum-
stance of its being ia the defendant's power to have avoided the
additional payment by discharging the principal sum when it became
due and the jury accordingly found for the plaintiff. Upon a
;
motion for a new trial, his lordship concluded that general usage
could not protect usury ; but he thought, in addition to the grounds
relied on at the was no pretense for supposing this
trial, that there
to be a horr(ywing or hem, was discharged
and therefore the rule
{Floyer v. Edwards, Cowp. B., 11 2). The suggestion of Lord
Mansfield, that the ease was free from the taint of usury because it
was not one of borrowing or locm, may be open to some criticism,
for the reason that it is well settled that there may be usury in
cases of forbearance of debts already incurred by means other than

borrowing, and such has been recognized as the law from a very
early period ( Vide Pollard But the
v. Soholey, Gro. Eliz., 20).
decision of Lord Mansfield can be sustained upon the principle

laid down in the exception referred to in the commencement of
this chapter. The goods had been sold at a certain price, which
was to be forborne for three months, without (as it appeared) any
interest or remuneration for such forbearance ; but if the debtor
did not pay the price at the expiration of that period, if he chose
to increase the time of forbearance, he was to pay for this increase
after a rate greater than the statute allowed, and the court held
that he might lawfully do this, and that too from a string of unsha-
ken Lord Mansfield's judgment in the case, however,
'decisions.
seems to have proceeded upon the ground that the transaction was
that of a bona fide sale, and no loan still, the principle of the
;
payment of interest being optional with the debtor, and its defea-
sibility being in his power, was adverted to in the opinion, and
may be considered as sufficient to support the decision.
Among the early cases decided upon the principle under discus-
sion, though later than that of Floyer v. Ed/ma/rds, may be cited
the following, which arose in the High Court of Chancery of Eng-
land : The defendants entered into an agreement for the purchase
of two houses from the plaintiff, for the price of £431 10s., posses-
sion, tobe given and £200 paid immediately, and the remainder,
with legal interest, at Michaelmas but if the balance was not then
;
paid, it was agreed by the parties that the defendants should pay.
208 LA.W OF usriRT.
" in lien of interest upon the same, a clear rent of £42 per annum/'
out of which the plaintiff was to deduct interest at the legal rate
in respect of the sum first paid to him. The
was for a specific
bill
performance of this agreement, which was resisted on the founda-

tion of usury. Lord Kenyon, when master of the rolls, decreed
for the plaintiff, from which decision the defendants appealed. It
was contended on behalf of the defendants that this was a usurious
contract, for the purchase was complete, and the agreement there-
fore was to give more than legal interest and it was expressly
;
stated in the agreement to be in lieu of interest for the forbearance

of that part of the debt which it was agreed should be paid at
Michaelmas. On the contrary, the plaintiff's counsel insisted that
the defendants were under no obligation to remain the tenants of
the plaintiS any longer than they chose ; that if they saw fit to pay
the money at the day specified, they ceased to be tenants and became
purchasers ; and that, as the defendants had an election to put an
end to the affair, the transaction was not usurious. Lord Commis-
sioner Eyre said :
" The language of the agreement gave it, to my
mind, the appearance of usury ; but when one defines usury, and
looks at the spirit of the agreement, the first impression does not
seem suflBciently strong to sustain the defense. Usury is the taking
of more than £5 per cent for the forbearance of a debt. The
first question therefore is, was there a debt ? I think not the ;
whole rested upon an executory agreement, which for performance

depended on many circumstances which might prevent its ever
becoming a debt. This, however, is a narrow ground take it on ;
the more general ground, as disclosed by the proceedings, the con- —

tract was for a title, and almost for ready money. Eossession till
the completion of the title was a fair subject of contract between
the parties. In the event of the money not being paid, a new idea
appears to have occurred to the parties as to the possession. The
bargain for title was to be suspended, and a new relation to arise
between the parties, namely, that of landlord and tenants. If so,
there is nothing usurious. If they turned themselves into these
characters, the plaintiff might well be entitled to rent till he put
the estate out of him." The decree was affirmed {Spurrier v.
Mayoss, 4 BtowtH-s Ch. B., 28).
According to the report of this case of Spurrier v. Mayoss, by
Vesey, Jr., it would seem that the decision was put upon the
ground that the contract was for the purchase of houses, and not
'
for the forbearance of money andthat no conveyance having been

;
perfected, the legal estate was still in the vendor, and therefore it
•was competent to the parties to consider themselves in the light of

landlord and tenant. Says Lord Commissioner Eyre, according to
this report " If that was the true nature of the agreement, upon
:
the merits there is nothing usurious ; for if he turned himself into

a, sort of debtor as to the £200 paid, paying interest till the rest
should be paid, he must be considered in justice and equity entitled

to the interest in the estate till conveyed out of him, which puts
him into the situation of landlord, and then he might receive a
rent till he became seller by receiving the money and conveying
the title."
Lord Commissioner Wilson said :
"
The plaintiff, proprietor of
"two houses, agrees to sell them. They were not thus sold, for if
so, there must have been a conveyance ; but there was an agree-
ment for that in the usual course, when the purchase-money should
be paid. Then,' says the plaintiff, 'if you do not pay at Michael-
'
mas, being one of the terms of the agreement that immediate

it
possession should be given, I will account at the rate of £5 per

cent in respect of the money paid, which is to be considered as lent
to me, and you shall pay a rent of £42 per annum.' It is as legal
as if he had said he wanted the money at Michaelmas, and if it
should not be paid, they should pay, for these premises £300 for ;
it is a contract for the purchase of houses, not for forbearance of
money " {Spwrrier v. Mayoss, 1 Ves., Jr., R., 527, 532-534). "Which
is the more accurate report of the case, tliat of Brown or Vesey,
Jr., is not certain. But
would seem from the facts, as is
it
stated by both reporters, that the case could have been disposed of
upon the ground laid down in the report by Brown.
Another strong English case may be referred to A. was :
indebted to B. in the sum of £80, and gave liis promissory note

for £87 3s., payable ^by four quarterly installments (being the
amount of this principal and legal interest), with a clause in it
which provided that, in case default should be made in payment
of any one installment, the whole sum should immediately become
payable. The court held that this was not a stipulation for usury,
but for a penalty and that A. was entitled to recover the whole-
;
sum, on default being made in the payment of the first install-

ment ( Wells V. Girling, 4 Moore's E., 1'&;S.C.,\ Brad. <& jBing,
R., U1;S. C, 5 Mg. 0. Zr R., 733).
37
210 LAW OF vsnsr.
And 80 late as the year 1852, the same doctrine was asserted and
acted upon by the English courts. A case occurred in which
usury was sought to be established in a security for a loaii, from
the circumstance that the money was not advanced until some
time after the date of the instrument, which called for interest
from that date at the rate of five per cent. But there was a pro-
vision in it by which the creditor agreed to receive interest at the
Tate of four per cent only if it was promptly paid. This reduction
of interest, if the debtor availed himself of the provision, would
more than countervail the which would have arisen out of
excess
the antedating of the- instrument. And it was held that this was
an answer to the imputation of usury, because the debtor, by mak-
ing punctual payment of the interest, would not have paid beyond
Jive p&r ceni/wm per murium {Long v. Storie, 10 JEng. Law amci
Eg. E., 182).
The distinction to be made between" the and the
cases of penalty
common cases of exorbitant interest where the interest is pre-
is,
carious from some extrinsic event, and where it is liable to be

avoided by the act of the party. In the former instance, the transac-
tion would be usurious. In the latter, it would not be. The pro-
priety of the distinction has sometimes been questioned, on the
ground that the exception to the general rule in respect to the
hazard of the interest may offer facilities for evading the statute
against usury by a secret understanding that the penalty shall be
forfeited and no redemption made; an understanding, which
though it might be used to avoid the agreement as between the
parties themselves, would completely deprive a stranger of the
manner of enforcing the penalties of the statute. But it is not
necessary to inquire into the foundation of the distinction ; it is
sufficient that it is recognized by the courts.

Although all of the foregoing cases upon the subject are from
the English reports, yet the same doctrine has been repeatedly
held by the courts of this country. The rule was, a long time ago,
laiddown by the Supreme Court of the United States, in just so
many words, that where a party agrees " to pay a specific sum
exceeding the lawful interest, provided he do not pay the principal
by a day certain, it is not usury, for the reason that by .a punc-
tualpayment of the principal he may avoid the payment of the
sum stated, which is considered as a penalty " {Lloyd v. Soqit, 4
Peters' R., 225, per McLean^ JusUce).
The same doctrine was held in an early case, in the State of

Massachusetts, referred to in a previous chapter. A party gave
to his creditor his note for the amount he owed him, on
time, pay-
able in oats at twenty cents a bushel, when oats were worth at
least thirty-three cents a bushel, with the express understanding

that if the maker would pay cash within a stipulated time he need
pay only the face of the note. Upon suit brought on the note, it
was contended on behalf of the defendant that the note was usuri-
ous ; that the making it payable in specific articles was a mere
color to avoid the statute. On the contrary, the counsel for the
plaintiff insisted that the contract was not usurious, because it was
in thepower of the defendant, by discharging it at a certain time,
to avoid paying more than the original money, and that without
any interest at all. The court took the latter view of the subject,
and held that, where, %
the terms of a contract, the party may,
by payment at a day cfertain, avoid any stipulated penalty, such
contract is not usurious {Cutler v. Sow, 8 Mass. B., 257).
The same principle was controlling in an early case in the State
of 'Connecticut, although the doctrine was not referred to in the
disposition of the ease. The defendant was owing $129.84, and
gave his note for $150 at ninety days, with the understanding that
if he did not pay the actual indebtedness in ten days the note
might be sold in market, or otherwise disposed of, to raise the

amount. The debt not being paid, the note was sold for $139,
and the defense of usury was interposed against it but the note ;
was held to be a valid contract, and free from the taint of usury
{Tuttle V. Clark, 4 Conn. R., 153). And in an earlier case in the
same State, the court held, that a contract to return certain public
securities by a certain time, or to pay a certain sum in lawful
money, less than the amount, at the option of the promisor, was not
usurious,and that there was no room for a hearing in chancery
upon such a contract, as to damages ( Wadsworth v. Chanvpion, 1
Root's B., 393).
In the been laid down.
State, of Yirginia, a similar doctrine has
An agreement was entered into between a commission merchant
and his debtor, to whom he granted indulgence, that he should be
allowed the usual commission, according to the course of trade, for
selling tobacco, to be shipped to him by such debtor in payment
for his debt, and that such commission should be allowed also, in
the event of his debtor's failing to ship the tobacco. The court
212 LAW OF USURY.
held that the contract was not usurious, and declared that a penalty
inserted in a contract, from which the party may deliver himself,
does not make such and that the law is the same
contract usurious,
where it is in the power of the party, by a compliance with his
contract, to convert the penalty into a compensation for services
rendered by the other party. Roane, J., in giving the unanimous
opinion of the court, said :
" As to the contract contained iu the
deed, we see nothing objectionable in it. Donald and Burton,
having a ready-money claim against Baylor, were neither com-
pellable to wait for payment nor to receive tobacco. Being, more-
over, commission merchants, trading in that article, they might
justly connect with the contract of payment, one inuring to their
benefit in this last character. This (as a shipmeiit was intended)
was no loan injurious to Baylor he must have paid somebody for
;
selling it, and the compensation is found and agreed to be reason-

able. As they, under their contract, were compellable to sell the
tobacco, it was competent to Baylor to bind himself to ship it, and
to assess the damages in case of non-compliance,with their stipula-
tions. "We are of opinion that, in the event which has taken
place, of a non-shipment of the tobacco, although the term '
comb-
mission '
is kept up in the deed, it becomes, in truth, only the
agreed damages or penalty for a non-compliance with the contract.
If the tobacco had been shipped, as was contracted for, all would
have been right, and the compensation now objected to would
have been secured by the sale of the tobacco. "We are all of the
opinion that a penalty inserted in a contract, from which) a party
may deliver himself, does not make the contract usurious, and
that the law is the same where it is in the power of the party, by
a compliance with his contract, to convert it into compensation for
services rendered" (Pollard y. Bwylor, 6 Munf. E., 433).
And in another case in the Court of Appeals of the same State,
it appeared that A. proposed to B. that he should buy his land,
which was advertised to be sold under a deed of trust for the
amount of the creditors' debt, and should let him (A.) have it
again upon payment of principal and interest at the end of twelve
months, instead of which they entered into an agreement that B.
should attend the sale and bid the amount of the creditors' debt
for the land, and if it was struck ofi" to him, that he should resell
it to A. for a sum thereafter to be agreed upon, provided it was
paid within twelve months. B- accordingly bid off the land. The
sum was to resell the land to A. was never agreed

at whicli B.
upon, though it was understood that it should be such a sum as
would reimburse B. the money paid, the sacrifice he might make
to obtain it, and liberally compensate him for his trouble. The
court held that this contract was not usurious, but was a valid
agreement between the parties and further, that if the money was
;
not paid to B. within twelve months, nor the sum fixed, the pur-
chase was absolute {Jones v. Mubba/rd, 5 CaWs JR., 211; and
videJwmen v. Lewis, 2 Stewa/rfs R., 426).
In the State of Iowa, the question came squarely before the
Supreme Court, and it was held that an agreement to pay a sum
of money by a day certain, and more than legal interest afterward,
by way of penalty, if the debt be not punctually paid, is not
usurious. The action was upon three promissory notes, payable
respectively in six, nine and twelve months from date, each of»
which notes contpîned a provision as follows :
" If not paid punc-
tually when due, we promise to pay, as a penalty for the default,
two and a half per cent per month from maturity till paid." To
which action the defendants answered, denying the indebtedness,
and alleging that the notes were usurious on their face. The plain-
tiff demurred to so much of the answer as pleaded usury, and the
demurrer was sustained by the court. Stockton, J., said " The :
agreement to pay the penalty of two and a half per oentv/m per
Tnomth, in default of payment of the principal sum and interest
when due, formed no part of the consideration of the several pro-
missory notes, or either of them, and consequently does not affect
them with the taint of usury. The agreement was in its language
and terms a penalty to secure the faithful performance of the
original contract. If this contract had been performed by the
defendants, and the money paid according to the terms and effect
of their undertaking, at the time the promissory notes fell due,
there would clearly have been no usurious interest paid or received.
The defendants then had it in their power to obviate the objec-
tionable portion of the contract of which they complain, and by
their own act free the promissory notes of the supposed taint of
usury, to which they now object. "Where a party agrees to pay a
sum money by a day certain, and more than legal interest after-
of
ward, byway of penalty, if the debt be not punctually paid, such
agreement is not usurious. The authorities to support this point
214 I'^W, OF USUBT.
are numerous" {Gower v. Ga/rter, 3 Iowa B., 244, 262; and vide
/Shuck V. Wright, 1 G. Greme's B., 128).
And in a recent case before the same court, the authority of
Gower v. Carter was recognized and the doctrine confirmed.The

plaintiffbrought his action upon a promissory note dated January
1, 1868, for $170.10, and "if not paid when due, with interest at
ten per cent from date." The court held that the note by reason
of the stipulation as to the ten per cent interest, was not usurious.
"Wright, J., said :
" It will be seen that there was no evidence that
interest to the 1st of January, 1868, was included in the note, and
that ten per cent was agreed to be paid on the amount thus com-
puted from the date of the transaction or loan. Upon its face the
contract seems to be fair and not unusual. Whether the ten per
cent be called a penalty or interest, the note would not be tainted
with usury, for by the statute it is competent to contract for and
take ten per cent. If defendant was, at the date of the note, owing
$170.10, then, under the law, plaintiff would take his promise to
pay ten per from the date, leaving the payment of the interest
cent
so reserved depend upon the prompt payment of the principal at
maturity. And upon the face of the note this is all there is of the
ease " {Fisher v. Anderson, 25 Iowa B., 28 29 am,d vide Wilson ;
V. Bean, 10 *5., 432).
In the State of Mississippi, the Supreme Court has held that an

agreement in a promissory note that, if the note be not punctually
paid at maturity, it should bear interest from the date, though
the consideration for which was given might not be complete
it
until its maturity, is not usurious, and that interest will be com-
puted according to the terms of the agreement {Sogers v. Sample,
33 Miss. B., 360).
And in the State of Indiana, in a case where a mortgage reserved
ten per cent, and provided that the land might be exposed to sale
if both principal and interest be not paid at the time the
same shallbecome due, to satisfy said principal and interest,
with five jper cent damages and all costs, the Supreme Court held
that the contract was not usurious declaring that the t&n, per cent
;
was the lawful rate of interest, and, as to the five per cent dama-
ges, it was entirely optional with the mortgagor whether he would
pay the same or not that they were in the nature of a penalty for
;
the want of punctuality in paying the debt when due, and that this
saved the contract from the taint of usury {Gamhrill v. Doe, 8
:
Bladkf. jB., .14:0; md vide Billingsley v. Dean, 11 Ind. R.,
331).
§0, also, in the State of Illinois, the Supreme
Court has held that
where, by the terms of a contract, a party can discharge himself
by paying the amount due, the transaction is not obnoxious to
real
the statiite against usury. The action was upon a promissory note
for $500, payable four weeks after date, " with ten per cent inte-
rest after maturity." The defendant pleaded that the note was'
usurious. The plaintiff demurred to the plea, and the court sus-
tained the demurrer, at the circuit, and the defendant appealed to
the Supreme Court, where the judgment of the Circuit Court was
afiBrmed. Treat, C. J., in delivering the opinion of the court, said
" The demurrer was properly sustained to the second plea. The
only pretense for holding the contract usurious was the fact that a-
greater rate of interest than the law allowed was to be paid after
the note became due. That circumstance did not taint the trans-
action with usury. The
interest was in the nature of a penalty to
secure the punctual payment of the debt. It was in the power of
the maker to avoid.the payment of interest altogether, by the prompt
payment of the principal. * * * On this point the law seems
to be well settled" {Lwwrence t. Gowles, 13 III. E., 577-579).
The same doctriae, in its broadest sense, has been repeatedly
sanctioned, and cases decided in accordance with it, in the State of
New York. In a late case in the Court of Appeals, the rule was
applied. A party was indicted in the Court of Oyer and Terminer
for the offense of receiving usury, contrary to the statute, and the
indictment was sent to the Sessions, where the trial took place.
The indebtedness arose upon a bond and mortgage held by the
defendant when the principal was due, the debtor gave the defend-
;
ant an agreement in these words " If I do not pay N". Sumner the
:
$800 I owe him by December 5, 1857, 1 will give him sixteen dol-
lars extra. John Burdick. Eôvember 30, 1857." A receipt for
the sixteen dollars was indorsed on the agreement, when it was
given in evidence. It was proved that the whole $800 and inte-
rest was paid, together with the sixteen dollars, the latter at or
shortly after the paper was signed, but no part of the $800 was
paid until about the 1st of February, 1858. This was the substance"
of the testimony against the defendant, except a witness testified
that the defendant admitted to him that he had been paid in the
transaction two per cent extra besides the interest. The defend-
216 LAW OF USURY.
ant's counsel moved that the court direct a verdict for the defendant,
for the reason that the sixteen dollars extra was taken on a contract
for a penalty for the non-perfoirnianee thereof, and not for a loan or
forbearance of money. The motion was denied, and the defendant
excepted. The defendant's counsel also requested the court to
charge that, if the sixteen dollars extra was paid to the defendant by
Burdick, " on the happening of any contingency over which the
said Burdick had a control, it was not usury." The court declined
so to charge, and the defendant excepted. The jury found the
defendant guilty, and the court sentenced him to pay a fine of $100.
The judgment was affirmed by the Supreme Court, and the defend-
ant brought the same into the Court of Appeals for review, where
the judgment was reversed, by a vote of five of the judges against
three. J., who delivered the prevailing opinion of the
Ingraham,
court, said :
"
Upon the trial, the judge submitted to the jury the
question whether money had been taken. This, of course, involved
the inquiry whether the wjitten agreement was intended as a cover
for usury, and the jary have found that it was. With that ruling
or finding we cannot interfere. * * * And the decision of
the jury, if there were no errors in the instructions, would bind
the parties. The judge w^s asked to charge the jurj that, if the
sixteen dollars was to be paid by Burdick on the happening of any
contingency over which the said Burdick had control, it was not
usury. This was refused. To constitute usury there must be either
a payment or an agreement by which the party taking it is entitled
to receive more than seven per cent. If the payment is conditional,
and that condition is within the power of the debtor to perform,
so that the creditor may, by the debtor's act, be deprived of any
extra payment, it would not be usurious. * * * I think the
judge erred in refusing to so instruct the jury, and that the judg^
ment should be reversed therefor.' It is said, in the opinion deliv-
ered at the General Term :
'
It is clear that the contract, on its
face, was not usurious, and we should "presume that the court
charged the jury that upon its face it was not usurious, because
such a charge would be correct.' I am at a loss to see upon what
ground a court has a right to presume a judge charged correctly
in the face of a refusal to charge what the law is conceded to be.
On tha contrary, when the judge refuses to cha,rge a plain propo-
sition of law, the presumption is that he holds thelaw to be other-
wise, and his refusal is based thereon." Denio, Ch. J., delivered
assented to
a very able dissenting opinion, in wbicli he expressly
the general doctrine that, whenever it is in the power of a
bor-
pay within a limited time, with-

rower of money to the principal
out the usurious interest, upon non-payment the reservation of a

larger sum than is no usury.
the statute allows He also conceded
that the contract at bar was not usurious on its fece that is to say, ;
if it was a sincere and honest agreement, the undertaking was

not
usurious. But he contended that contracts of this character onght
to be narrowly watched; for, if the penalty was a mere contriv-
ance to avoid the statute of usury, the arrangement will still be
held usurious ; that, in this case, the day named for the payment
of the principal sum was only five days from that on which the
arrangement was made, and, hence, there was pretty strong rea-
son to believe that the sixteen dollars was paid to obtain a longer
extension than the five days ; so that the finding of the jury was
quite satisfactory ; and, on the wholp, he was of the opinion that
the request to charge the jury, in respect to the rule which was
conceded to be the law was too strict and absolute, and was, there-
fore, properly refused. In this opinion, Selden and Johnson, JJ.^
concurred ; but all the other judges being in favor of reversal, the*
judgment was reversed {^wmner v. Ths People, 29 N. Y. B., 33Y.
339-346 ; and vide The Bamk of Ghenango v. Curtiss,. 19 Johns.
E., 326).
It may, therefore, be safely affirmed that the law is well settled
upon authority, that, though more than legal interest be reserved
on a contract upon the loan of money, yet, if it be part of the
agreement that the borrower ma^j^ discharge himself from payment
of any interest at all, by repayment of the principal on a certain
day, the case does not fall within the provisions of the statute
against usury. And, probably, the game rule would be recognized
in a casewhere the borrower may discharge himself from payment
of the exorbitant intereBt simply by prompt payment of the prin-
cipal and legal interest; that is, if it clearly appear that the extra
sum is required, in good &ith, to secure prompt payment of the
true amount due.
On a similar principle, a loan of stock is not usurious, nor the
payment of the dividends in the meantime, even though they
exceed the legal rate of interest ; but, as the temporary transfer of
stock in the public funds is an engine of usury not unfrequently
resorted to, the courts, are wary to examine such cases, to determine
28
.
218 -S-^H^ OF USUBT.
the real nature of the transaction. However, it is well settled that

the mere loan of stock, if made in good faith, is not usurious.
One of the very earliest cases upon this subject, in which the
transaction was sustained, was an action in the English courts, on
a bond dated the 24:th day of March, 1786, .in the penalty of
£1,550 6s., to which the defendant pleaded usury. It appeared in
evidence that the defendant had applied to one T. Welliugs (to
whom the plaintiff was executor) to advance him a loan of money,
which the testator consented to do, upon the defendant's promising
to him the same interest that he received in short annuities, that
is and a half per cent it was, therefore, settled that

to say, eight ;
the money should be raised by the sale of short annuitieSj to the

amount of £912 12s. ^d., which the defendant was to replace in
the same stock by the 1st of September, 1785 but, if it was not ;
replaced by that time, he was to repay that sum on the 1st of

January, 1786, and in the meantime to pay such interest as the
stock would have produced. There was no actual transfer of the
.
short annuities to the defendant himself; but the stock was reaUy
sold to some other person, and the defendant received the produce
of it the same day. Lord Kenyon left it to the jury to say whether
it was intended as a hona fide loan of stock, or as a loan of money,
and the present device a mere color for receiving more than legal
interest. The jury found that the transaction was a fair and honest
loan of stock, and gave the plaintiff a verdict. A rule for a new
trial was obtained upon showing cause against which, it was urged
;
that the defendant having it in his power to replace the stock any
time before September, 1785, during which interval the testator ran
the risk of the stock falling, and the defendant replacing it upon
such a fall and that the testator was only to receive what he would
;
have received in case he had not sold his stock. In support of the
rule, it was contended that though a contract for the loan of stock,
to be replaced at all events, be legal, yet, as there was an alterna-

tive to replace it, on a given day, or to repay it in money, with
more than lawful interest, it was usury. The court, however,
were of .a contrary opinion and, as the jury had negatived the
;
color of usury, they thought themselves bound to consider it a fair

transaction, and accordingly discharged the rule (Tate v. Wellings,
3 Term B., 531).
In a later case, the defendant was possessed of £400 in three per
cent consols, and it was agreed that, in consideration that the
;
'
plaintiff would loan to. the defendant £160 from the 5th of May,
1801, to the 11th of February, 1804, the defendant would, within
seven days after the 11th of February, 1804, transfer to the plain-
tiff the £400 three per cent consols, or pay such sum of
sum of
money as the £400 would produce on the 11th day of February,
in case it was sold. It was proved that the value of the £400
stock, when the agreement was made, was £240, and, at the time
of the action, brought £225. was contended that this was
It
usury for, as the stock was worth £240, and as the plaintiff had
;
only paid £160, he had gained £80 by his bargain, and the divi-
dends in the meantime that it might be said there was a contin-
;
gency, because the three per cents might fall to twenty or thirty
per cent but that this was an impossible supposition. But Lord
;
EUenborough said, that whatever remedy the defendant might have

in equity, on the ground of this being a catching bargain, he had
none at law ; that contingency in the thing purchased was incom-

patible with the idea of usury, in which the principal must always
be certain. It was admitted that if the stock, when transferred to
the plaintiff, would be worth but £160, would not be usury it
although it was very improbable that the stock would suffer that
most extraordinary depreciation, still it was within the reach of
possiJDility. He could not, therefore, say that there was not some
contingency in the transaction, and he was, consequently, of opin-
ion that the contract was not usurious {Pilce v. Ledwell, 5 Esp.
iT. P. C, 164). In this case, the doctrine of contingency seems
to be carried to a great length. It would seem, from the reason-
ing of Iiord EUenborough, that an accident barely within the scope
of possibility was as effective in the premises as one that may
prdbahly occur; whereas, in one important and well-considered
case, it was observed that the sUghtness or reality of the risk
seems to be the only rule directing the judgment of the court

{Chesterfield v Janssen, 1 Atk. R., 340, per Burnett, J.).
In another case in the English Court of King's Bench, the
plaintiff declared upon a bond, dated the 19th of November, 1803,
for £972 9s. ; and, upon a plea of usury, it appeared that the
defendant had been indebted to the plaintiff in £486 4s. Qd., for
which the plaintiff had sued him ; but being unable to pay it, he
agreed that, in consideration that the plaintiff would forbear his
action till the 19th of November, 1804, he would give him a bond
•to transfer to the plaintiff, on the 19th of November, 1804, so
;
220 ^^1^ O^ USURY.
much £486 4s. 6d would purchase at the then present

stock as
day's price, which would amount to £908 16«. Id,, together with
such interest as the same would have procured as such stock in the
meantime; and accordingly the bond in suit was given. Lord
EUenborough having left it to the jury to say whether this was a
fair transaction or a mere color for usury, they found for the
plaintiff. On a motion for a new tria.1, Lawes contended that

the consideration of the bond, as set forth in the conditio^, was
usurious upon the face of it, however fairly intended by the parties,
as it was evident that more than the legal rate of interest was
received by the plaintiff for the loan of £486 4«. Qd., during the
twelvemonth, upon the price of the stocks. But all the court
agreed that this was not usury, as the amount of the sum to be *
paid by the defendant depended upon a contingency ; and if the
stocks had feUen in the meantime to £50, the plaintiff would have
received legs than his, principal and the legal interest would have
amounted to that this was no more usury than an agreement to
;
replace stock lent, which, though once contended to be usury, if

more than the principal and legal interest were thereby obtained,
had been long settled to be lega.1. If, indeed, this had been a merer
color for usury, it wpuld not have availed ; but that was negar
tived by the jury, and nothing appeared to impeach the fairness
of the transaction. And the court, in conclusion, held that the
transaction was, in effect, a loan of stock.The plaintiff- would
have purchased stock on the 19th of Novem-
at the price it stood at
ber, 1803, if he had received his debt then but he was content
;
to take his debt in stock, to the same amount, at a future day

that is the case with every contract for the replacing of stock.
The intention of the parties to a loan of stock is that it should be
sold,and the same quantity of stock repurchased at a future period
by the borrower {M'addock v. EvmbaM, 8 EasBs E., 304).
The foregoing are leading English cases upon the subject in
connection with the sale or loan of stock, in which the transac-
tions have been held to be free from the taint of usury from ;
which it may clearly be deduced with regard to contracts to

replace stock at a future day, according to the then state of the
market, that,if the lender be not certain whether by the stocks
being replaced at the given day he shall be a loser or gainer, any

gain which he may obtain by the replacing will not taint the
TRANSACTIONS NOT UBURIOUS. 221
agreement with usury ; but if, on the other hand, he has so made
the agreement that he is secure from loss, and has a chance of
gain, this, by taking away the contingency, deprives the trans-
action of its legality. And perhaps this may be regarded as the

criterion by which to determine the question in all these cases.
The subject of this chapter, in the precise form in which it is
presented in the English cases, does not seem to liave been fre-
quently before the courts of the United States, although those

cases are uiiiformly recognized as authority here, and several cases
involving similar principles have been decided by our courts. In
the late Court of Chancery of the State of New York, before the
vice-chancellor of the eighth circuit, it was held that an exchange
of depreciated securities for bonds and mortgages of the same
nominal amount and of greater value, not being intended as a
cover for a loan, was a sale, and free from the taint of usury and ;
it was declared that the fact that the assignee of the bonds and
mortgages guaranteed their payment did not change the nature of
the transaction ( Western Heseroe Bank v. Potter, CIo/pMs E.,
432).
Substantially thesame doctrine was held in the same court
before the vice-chancellor of the first circuit. The plaintiff had
subscribed for $10,000 of the stock of a banking association, and
applied, as he alleged in his bill, to the association for a loan, and
it was arranged that the association would transfer to him, at par,
$50,000 of the five per cent stock of the State of Maine, which
was then a depreciated stock, and worth in the market about
ninety per cent, and bought by the association at that value,
and issue to the plaintiff the $10,000 of the capital stock of the
association subscribed for by the plaintiff; in consideration of all
which the plaintiff should execute and deliver to the association
his bond and mortgage for $50,000 and the business was con-
;
summated accordingly. An action was commenced against the

plaintiff by the association upon his bond, and the bill was filed
in the Court of Chancery to stay the suit at law, and to procure a

decree that the bond and mortgage be given up to be canceled
for usury, and a tesmporary injunction was issued. The answer of
the defendant denied that there was any loan, but as to the $50,000
of Maine five per cent stock, it was a sale to the plaintiff, who
volunteered and chose to take it at par. The defendant made a
.
222 LAW OF USURY.
motion on the bill and answer to dissolve the injunction; on
which the vice-chancellor decided that there was no usury in the

transaction, and ordered the injunction dissolved ( Willcmghby v.
Gomstooh, 3 Edw. Ch. E., 424).
The vice-chancellor, in the case of Willoughhy v. Comstook,
rested his decision upon a case previously decided by the Supreme
Court of the United States, in which Mr. Justice Story, who
delivered the opinion, said " If the application be not for a loan
:
of money, but for an exchange of credits or commodities, which

the parties honafid/e estimate at equivalent values, it seems diffi-
cult to find any ground on which to rest a legal objection to the

transaction. Because an article is depreciated in the market, it
does not follow that the owner is not entitled to demand or require
a higher price for it before he consents to part with it. He may
possess bank notes, which to him are of par value, because he can
enforce payment thereof, and for many purposes they may pass
current at par, in payment of his own debts, or in payment of
public taxes and yet their marketable value may be far less. If
;
he uses no disguise if he seeks not to cover a loan of usury under

;
the pretense of a sale or exchange of them, but the transaction is
honafide what it purports to be, the law will not set aside the
"
contract, for it is no violation of any public policy against usury
{Bank of the United States v. Waggoner, 9 Peters' E., 378, 401).
In an early case in the Court of Appeals of the State of New
York, it appeared that a party purchased of a banking association
$15,000 of its stock at par, and executed his bond and mortgage
to secure the payment of the amount ; that when the transaction
was consummated, the price of the stock in the market was below
par, although the purchaser received it at its nominal value, and
itwas objected in an action to foreclose the mortgage that it was
usurious and void. The court, however, held that it was not
usurious for a banking association to receive a mortgage from an
applicant for stock and issue to him therefor an equal amount of
its stock, although when the transaction is consummated the price
of the stock in market is below par.
Gardner, J., said :
" The defendants
Pell and wife object to the
validity of the bond and mortgage in controversy. First, upon
.the ground of usury. Second, upon that of fraud on the part of
the association. There is no foundation for the first objection in
"
TRANSACTIONS NOT USVBIOUS. 223
the pleadings, nor for the second in the proofs. The caseshows
that Pell intended to exchange, and did exchange his bond and
mortgage for the stock of the company, ; that when issued to him
it was worth ninety-eight cents npon the dollar ; that he has dis-
posed of it according to the purpose stated in his answer, and has

received and appropriated the avails to his own use. The defense,
if successful, would give him $15,000 in the stock of the associa-

and enable him to cast
tion or its proceeds, without consideration,
upon the and bona fide stockholders of the company the
creditors
loss arising from his own improvidence. * * * Assuming the
validity of the bond and mortgage, the only remaining question
will be whether the State of Ohio, through the agreement and
assignment- stated in the bill, obtained such a title to the securi-
ties as will be recognized and enforced in a court of equity
{Talmadge v. Pell, 7 W. Y. R., 328, 339, 340).
In the old Supreme Court of the State of New York an action was
brought upon a promissory note, and the defense of usury was inter-
posed. The evidence given at the trial showed that one- Boniiell
loaned the defendant.$300 in bills or notes of the corporation of the
city of Rochester, on his promissory note of that amount at sixty days,
payable in current money. A part of the note was paid, and the
note in question given for the balance. At the time of the giving
the first note, the corporation bills were at a discount of from three
to five per cent ; but the defendant said, when
the loan was made,
that they would answer his purpose as well as current money.
The note in question was passed in the usual course of business to
the plaintiff before due, and for a full consideration. The defend-
ant asked the court to charge the jury, 1. That the note was usuri-
ous 2. That it was void, having been given for notes issued by the
;
city of Rochester without authority, and which could not be

enforced against the corporation. The judge declined so to charge,
and the defendant excepted. The jury found a verdict for the
plaintiff, and the defendant moved for a new trial on a case. The
motion was denied, and on the question of usury, Nelson, Ch. J., who
delivered the opinion of the court, said: " The learned judge was
also right in refusing to charge the jury that, as matter of law, the
note was void on the ground of usury. Perhaps he might have
been bound to put the point to them be
as a question of fact, if
had been requested to do so; but the weight of the proof was
decidedly with the plaintiff. It is true, the city notes were from
:
224 LAW OF USURY.
.three to five per cent

below par; but the defendant sought the
accommodation on the ground that they would answer his purposes
the same as current funds. Indeed, the whole case negatives any
intent on the part of the lender to gain a usurious advantage in the
transaction " {Roohwell v. Cha/rles, 2 HiWs B., 499, 501),
And in a late case before the present Supreme Court of the State
of New
York, a decision was made involving the principle, and in
accordance with the rule laid down in the foregoing cases. The
plaintiff claimed to recover the amount of two promissory notes
made by the defendant and indorsed to the plaintiff.
The defense
was usury. The notes were for the amount of thgir face, in bills
of a bank located in another State, which were not bankable in the
city ,of New York, where the note was given, being subject to a
discount, known to both parties, but which passed freely at par in
ordinary business transactions, the defendant stating that he wanted
the money to use elsewhere, and that the notes of such bank would
answer the purpose. The greater part of the bills received by the
defendant were used in his business. The justice presiding at the
trial charged, among other things, as follows: "The defense of
usury, however, good against a bona fide holder, and in reference
is
to that I charge you, that if the nbtes in suit were given under an
arrangement that they were for bills of the Valley Bank at par,
when they were known to be at a discount, then you must find
for the defendant." And " if Leland made such an arrangement
ashe intended to make, and the effect of it was that he would get
more than seven per cent for the use of his money, the transaction
was usurious, although he may not have intended to get more than
seven per cent."
The plaintiff duly excepted. A verdict was rendered for the
defendant, upon which judgment was entered ;and the plaintiif
appealed from an order subsequently made denying a new trial,
and the court at General Term reversed the judgment and granted
a new trial.
The opinion of the court was delivered by Bonney, J., who said
" We are of opinion that the portions of the judge's charge, above
quoted, were exceptionable, and that there should be a new trial in
this action. The application under which the notes in suit were
received was for a loan in Valley Bank bills on specified security
for one year, and it appears that bills of the bank were not received
in payment or deposit by the banks in the city of N'ew York, and
that they were purchased Ijy brokers at one per cent discount but ;
they passed freely, at par, in ordinary business transactions ; and

there was no proof or pretense that Leland & Co. did not receive
the bills at par, or that Dillaye used them in his business at less
than their par value. Under the circumstances, we think both
Leland & Co. and Dillaye may have known that bills of the Valley
—
Bank were at a discount that is, were not current at bank and
' ' —
were so redeemed or purchased at New York at less than their par
value, and yet the transaction between them not be necessarily
usurious. * * * We are also of opinion that if Leland did not
make the very arrangement which he intended to make, and the
effect of that arrangement was to give him more than at the rate
of seven per cent per annum for the use of his money, which it
was not his intention to get, the transaction was not necessarily
cmd per se usurious. * * * The agreement for the loan may
have been in fact and in the intent of either or both of the parties
thereto corrupt and usurious but, as we think, it may also have
;
been otherwise. And it was usurious or not, was a ques-

whether
tion of fact, which should have been submitted to and determined
by the jury" {Eobbms Y.BiOwye, 33 Ba/rl. R., 77-80),
In a late case in the Court of Appeals of the State of New York,
it was held that where the transfer of a chose in action is coupled
with a loan of money, though the security prove uncollectible, the

transaction is not necessarily usurious. The action was upon a
promissory note for $356.97, made on the 16th September, 1857,
and payable two months from date ; the consideration of which
was a loan of $200 in cash, and the transfer of a note against &
third party for $150, payable in hemlock lumber at seven dollars
per thousand, guaranteed by the lender of the money, and some
other small items to make up The defense was usury,
the amount.
and it appeared on the maker of the lumber note was
trial that the
insolvent at the time of the transfer. The defendant requested the
court to charge the jury that if the lender made it a condition of
the loan of the $200 that the borrower should take the lumber
note and give the note in question for the amount of both the
money loaned and the lumber note, that alone would render the
note usurious, unless the plaintiff should show that the lumber note
was in reality worth the amount for which it was given ; and in
addition to this proposition, that if the jury found the lumber note
g9
226 LAW OF VSUST.
to have been worthless, the transaction was usurious, although the

holder at the time had no knowledge that it was worthless, but
supposed it to be good. The court refused to so charge, and the

defendant excepted.
The jury found a verdict for the plaintiff for the fall amount of
the note and interest, on which judgment was perfected, and an
appeal was taken to the General Term pf the Supreme Court,
where the judgment was reversed. The plaintiff then appealed to
the Court of Appeals, by which latter court the decision of the
General Term was reversed, and the judgment on the verdict
af&rmed. Porter, J., said: "The judge instructed the jury, in
substance, that, though the transfer was coupled with the loan, and
though the note by reason of the
finally .proved non-collectible,
insolvency of the maker and indorser, this would not render the
loan usurious, if Wood, at the time, believed the parties to be
perfectly solvent, and if the transfer was made in entire good faith
and without any usurious intent. This was a correct and accurate
statement of the law applicable to the facts. * * * The judge
also declined to charge that, if the purchase of the Morrow
note was a condition of the loan, the transaction was usurious, even
though Wood, at the time, supposed that security to be perfectly
good. The authorities already cited show that the request was
properly refused" {Thomas v. Mvm-wy, 32 JSF. Y. R., 605, ^09,
612). Judge Porter, in his opinion, seems to think that an -early
case in the old Supreme Court of the State mainly turned on the
precise question which he had under consideration and the case ;
may be very properly referred to here to illustrate the doctrine

under consideration. The suit was brought to foreclose a mort-
gage. The defense was, that it was executed to secure, among other
things, a usurious loan of $6,500. The alleged usury consisted in a
stipulation that the borrower should receive $5,000 of the amount
in bills of the Bant of Niagara. That bank had suspended specie
payments more than a month before the loan. Its bills were
greatly depreciated, and were commonly refused on any terms, for
business purposes. These bills had been turned out by that bank,
with other collaterals, to secure its own indebtedness to the Mechar
and Farmers' Bank. The officers of the latter, at the time
pics'
the were sent to Stuart, still hoped that the Niagara Bank
bills
would retrieve its affairs. Soon after the loan, it proved to be

: ;
insolvent. The. chancellor held that, though there was a stipular
tion that the borrower should receive the money in those bills, and
though they proved in the end to be worthless, the burden was
upon the borrower to show that the lender knew this at the time
of the loan ; and as he had not established this, the trtosaction
could not be regarded as a device to cover a usurious exaction.
The was then taken to the Court of Errors, where the decision
case
of the chancellor was unanimously afBu-med. Chief Justice Spen-
cer, who delivered the opinion of the court, said :
" The question
is,whether this was a loan of money contrary to the statute
whether the respondents, under the device of lending part in the
bills of their own bank and part in the bills of the Bank of Niagara,
have, in effect, intentionally and knowingly, taken more than
at the rate of six per cent interest for the loan and forbearance of
money. I say, hnowingVy and intenUonally ; for it cannot be
pretended that, unless the respondents knew that the bills of the
Niagara Bank were depreciated, and not intrinsically worth their
nominal amount, and intentionally put them off at their nominal
value with such knowledge, it would be a case of usury. * * *
I cannot find in this case evidence warranting the court in saying
that the respondents knew, or had reason to believe, when the loan
was effected, that the Bank of Niagara was insolvent, because it
had refused to redeem its bills in the winter preceding, or because

their negotiation for a loan had failed" {Stuart v. Mechanics' and
Farmers' Bamle, 19 Johns. JR., 508, 510, 511).
And in the State of Tennessee the Supreme Court held that
where depreciated stocks are sold for their nominal value, to be
paid for in bulk at a given time, the transaction is not necessarily
usurious. An action was commenced in the Circuit Court upon
the obligation following
" For and in consideration of Georgia State bonds, amounting
to $2,250, in the hands of Samuel S. M. Doak, this day ordered to
me by Samuel Snapp, I, Samuel W. Doak, promise to pay to the
said Snapp interest on said bonds, at the rate of six per cent, in
half-yearly payments, from this date. And I moreover promise
to pay, on or before the 5th of April, 1845, to the said Snapp, or
order, the $2,250 in Georgia State bonds, or their equivalent in
other money." For security a tract of land was conveyed in trust,
by the aa,nte interest, A bill was filed in chancery to enjoi^ the
;
228 ^'^W" OF USURY.
action, and for a decree declaring the contract usurious. The

Court of Chancery made a decree in the case, declaring that the
transaction was not usurious, and the complainant appealed to the
Supreme Court, where the decree was affirmed.
Caruthers, J., delivered the opinion of the court, and said:

" There must be an attempt and purpose, by some shift or device,
to evade the usury laws.. It would not necessarily follow, if the
bonds were sold for their nominal value, where they were much
depreciated, to be paid in full at a given time, that it would be
usurious. That would depend on the intention and purpose of the
parties, whether it was a contrivance to get usurious interest or
not. The stocks, or even depreciated bank notes, might be worth
to the purchaser or borrower more than they would then sell for
or even the lender might prefer to keep them, for the chances of
improvement in value, rather than part with them at less than the
amount for which they called their face. Upon the whole, we
think the decree is right, and affirm it " {Doak v. Snajyp, 1 Coldw.
B., 180, 183, 185 ; and vide Twrney v. State BamJc, 5 Suvvph.
B., 407).
In the State of Florida, the Supreme Court has heldth^t where
there is a loan of bank notes, which, though depreciated at the
time, yet serve and pass as money, both the borrower and lender
acting iona fide, regarding and treating the notes as money, the
transaction is not usurious. It was, of course, found in the case
that there was no shift to evade the statute against usury, as both
parties acted in perfect good faith {Haywa/rd v. Le Ba/ron, i Fla.

B., 404).
And the Circuit Court of the United States of the seventh cir-
cuit held that depreciated bank notes may be sold in the market
at a greater or less price, as may be agreed upon between the
parties. Like any commodity, they can be bought and sold with-
out usury. But that any device or cover which may be resorted to,
to evade the statute of usury, is corrupt and usurious. Mr. Justice
McLean said: ""The agreement to purchase from the plaintiEE
$1,000 in notes of the Bank of Illinois, for which a note for $1,000
was given, to be discharged on the payment of $500, was not a
usurious transaction, if there was a ionafide purchase of the Illinois
notes, and in this view it is immaterial whether the notes pur
chased were worth more or less th^n the price agreed to be paid.
TRANSACTIONS NOT USURIOUS. '
229
They were worth, as averred in the plea, only thirty-seven and, a

half cents on the dollar. The price, it- woul/i seem, agreed to be
paid was fifty cents on the dollar. But, if the purchase was lona
fide, there was no usury. The notes were not money, but pro-
missory notes, the same as the notes of an individual, and when
brought into market may be sold like other commodities for what
they will bring" {Judy v. Qvraird, 4 McLean's B., 360-362).
These cases will suffice to illustrate the uniformity with which the
rule referred to has been applied in transactions of alleged usurious
exaction in connection with the sale or exchange of stocks and
other securities, and they are the leading cases to be found reported
upon the subject.
CHAPTEE XVII.
TEANSACnONS NOT USUKIOHS —

OASES WHEEE HSUET HAS BEEN
INOrrEEED BY MISTAKE WHEEE THE EXCESSIVE INTEEEST IS
EESEEVED OE PAID AS A GIFT —
OF COMPOITND INTEEEST, SBMI-
ANNHAI. INTEEEST AND THE LIKE.
It has been stated in a previous chapter that in order to bring a

transaction within the statute against usury there must be a
corrupt mtention in the contracting parties ; and that if illegal
interest be taken or reserved by mistake, the parties are not to be

prejudiced thereby, because the intent is essential to the usury.
A some of the leading cases will illustrate the doctrine,

reference to
and show what transactions the courts regard as coming within
the rule.
A very early case in the English courts was this : An agree-
ment was made on the 23d day of May, 1617, to lend £120 for a
year, and a bond given for repayment of the said £120 with inte-
rest of £12 upon the 24th day of May next enswmg. It was
found that, in drawing the bond, the scrivener had inserted the
words " next ensuing " by mistake, and that the parties meant
that it should be paid upon the 24th of May m
the yea/r next ensu-
mg. The court unanimously agreed that this was not usury, for
there was no corrupt agreement between the parties, and the act
of a stranger shall not bring the lender within the danger of the
statute, especially as it was found that he did not require his pay-
230 ,
i'^W OF USURT.
ment Bnt Lea, Chief Justice, said, if he had

until after the year.
sought, by reason of the mistake, to have taken advantage of the
forfeiture for non-payment upon the next day, peradventure, it
would have discovered a corrupt intention in him, and that he
knew of that misprision at the beginning and would take advan-
tage thei'eof and this should bring him within the statute of usury.
,
But as it was found, it was clear that it was not usury {Buckley v,
Gmldhcmk, Oro. JaLc, 6Y8 8. C, 2 Bol. B., 414).
;
In another ancient case one Nevison brought debt upon a bond

of £100 for the payment of £54 half a year afterward. The
defendant pleaded that there was a corrupt agreement between
them for the loan of £50 for half a year and £4 for interest, upon
which the said bond was given. The plaintiff replied that it was
agreed between them that the £50 should be paid a year afterward,
and that the £4 was taken for the interest of a whole year ; and
that one J. S., made the bond, but being illiterate, mistook, and
made it, as it appeared. Upon demurrer, Jones, Croke and Barke-
ley were of opinion that the plaintiff should have judgment, and
that if there was no corrupt agreement the bond was good {JS'em-
son y. Whitby, Cro. Car., 501 ; wnd vide Balla/rd v.. Oddey, 2
Mod. R., 307).
In still another early case it was agreed that the plaintiff should
lend £50 to the defendant and that the defendant should pay for
the forbearance thereof according to the rate of five per cent and
no more. J. S., a scrivener, had £50 of the plaintiff in his hands,
and it was agreed between the plaintiff and. the defendant that the
said scrivener should pay the £50 to the defendant and take a law-
ful bond, with condition to pay interest according to the rate of
five per cent. The scrivener paid the defendant the £50, and in
the'absence and without the notice of the plaintiff took a bond for
the payment of usurious interest, and it was insisted that as the
plaintiff had accepted the bond, it was to be presumed that he
knew how it; was when he accepted it. But the court said it was
the" same case with Nevison v. Whitby {Cro. Car., 501), and that,
although the plaintiff had notice how it was when the action was
.brought, yet that did not make him a party to the corrupt agree-
ment, and, accordingly, they gave judgment for the plaintiff {Bush
V. Buckinghwm, 2 Yenbr. B., 83) ; and it seems that this case was
1
TBANSA CTIONS NOT USUBIO VS. 23
recognized at the same term of the court and confirmed {Buckler

T. Millard, 2 Ventr. R., 108).
So, in still another earlj case, it was held that if a scrivener, in
making a mortgage, through mistake made the money payable
sooner than it ought to be, or reserve more interest than ought to
be, that would not make it void within the statute, because there
was no corrupt agreement {Anonymous, 1 Freem. H., 253). And
in a subsequent case the same point was formally decided and the
doctrine fully sustained {Booth v. GooTce, 1 Freem. H., 264; and
vide Ifurray v. Harding, 3 Wil. JR., 390).
In a later, though quite early, case at nisi prius, it appeared

that in July, 1807, Haywood and Fraser, joint proprietors of a
West Indian estate, by their joint and several bond, executed in
St. Kitts, became bound to the plaintiff in the penal sum of
iil2,000, conditioned to pay £6,000 with six per cent interest. In

October, 1806, all the parties being in England, the plaintiff became
pressing for payment, and it was agreed between them that the
principal should be paid by two bills of exchange the one at —
twelve months after date, the other at two years. Accordingly a
bill was drawn for £3,180 and another for £3,360, after which the
bond was canceled. But, including interest for the different

periods the bills had to run at the legal rate of five per cent, they
ought only to have been for £3,150 and £3,300. On an action
being brought upon the and the defense of usury being
first bill
interposed, the plaintiff's agent testified that this arose from no

corrupt contract, but entirely from a mistake of his own that ;
after calculating the interest due on the bond at six per cent, as
permitted in the West Indies, he had calculated the interest upon-
the bills, which was to grow due in England, upon the same prin-
ciple. Lord Chief Justice Mansfield held that the action might
clearly be maintained for thesum actually due {GlasfurdY. Laing,
1 Camp. E., 149).
The foregoing cases are all early in English jurisprudence, and
go upon the principle that the corrwpt agreement is the essence of
the offense of usury, and that a party may, therefore, show what
that agreement was, and that it has not been correctly expressed
ia the written contract. The principle has always been recognized
in England, and the same is also equally true of the courts in this
country. AH of the authorities upon the subject, both.in England
232 i^T^ OP vsxmT.
and America, ancient and modern, speak a language too nuifonn

and plain to be mistaken. In order to avoid a contract for usury
the agreement must be corrupt. If neither party contemplated
usury and the same arises* simply from an honest mistake of
fact, the transaction can never be usurious. Indeed, it has been
declared by very respectable judicial authority in this country that
there can be no usury without the concurrence of both parties.
In an early case in the State of Connecticut, it appeared that
more than lawfbl was reserved, with the knowledge of
interest
the lender, but without' the knowledge of the borrower. This was
a glaring case on the point, but the court held that the transaction
was not usurious. In the opinion of the court, it was said " A :
corrupt agreement is essential to constitute usury and to form a ;
corrupt agreement, as in all other contracts, the minds of the parties

must meet. The assent of Beach (the defendant) was, there-
fore, as essential to the existence of a usurious agreement as that
of Bird (the plaintiff's testator). . From these premises it follows,
as an undeniable consequence, that there could be no corrupt

agreement while either of the parties remained ignorant of the
excessive reservation; and the jury ought to have been so
instructed." It was argued by counsel that it was enough that the
lender voluntarily made a usurious reservation ; and of the fact
that he did so there was no dispute but that construction of the

;
law was denied by the court and it was held that the ignorance
;
of the borrower precluded the possibility of an agreement, and

heince that there could be no usury in the transaction {Smith v.
Beach, 3 Day's Cos., 26).
In 1824, the question came before the old Supreme Court of
the State of N"ew York, and it was held that taking beyond the
legal interest by mistake is not usurious that is to say, where
;
the mistake is one of fact and not of law. On the 30th of

August, 1817, Ogden and Harrison owed the New York Firemen
Insurance Company several debts, and one Butler owed another,
for which several debts the company took a note of Butler, made
by Peters and Harrison, payable at four months from said 30th'
August. The debts were all due for premiums of insurance. The
company made a calculation upon the note, deducting $23.92
interest for the four months, at seven per cent, then deducted the
debts and paid the balance, which was twenty dollars, to Butler,
;
When this notebecame due, the makers oflfered a new note in

renewal, also at four months, which the company took, deducting
as before $23.92 for the interest, and giving their check to the
makers for the balance, and the old note was taken up. The
second note was renewed in like manner for the makers from four
months to four months, tiJl January 11th, 1819, when the note in
question was 'given. The discount taken was the fraction .of a
cent more than the interest would amount to for four months,
including the three days of grace. The
up was usury defense set
and a verdict was taken for the plaintiff for the full amount of
the note, subject to the opinion of the Supreme (ôurt upon a case
showing these facts. The case was fully and ably argued on both
sides, andjudgment was ordered for the plaintiff on the verdict.
a,
The court held that thecompany had a right to continue a debt

originally lawful in the manner this was done that the last note ;
was therefore valid; and that it was not usurious, though the
interest was taken in advance, with such a trifle beyond the
interest, on the ground that the excess would be presumed to have
been taken by mistake, and not by the adoption of an erroneous

rule of calculation, until the latter was shown.
Sutherland, J., in his opinion said :
" The note in this case was
payable in four months. The question which was discussed in
the case of these plaintiffs against Ely and Parsons, as to the
principle upon which the interest ought to be salculated, cannot
arise here, except in relation to the days of grace ; and there being
no evidence in the case to show upon what principle the interest
was calculated, even if there should appear to be a trifling excess,
we are authorized, and I think bound, to presume that the error
was the result of mistake, and not the adoption of an erroneous
principle of calculation" {New York Fwemen Insurance Co-m-
pcmy V. Stv/rges, 2 Gow. E., 6'64, GTY aoid vide AroMhald v.
;
Thomas, 3 ib., 284; Kent v. Walton, 7 Wend. R., 256). The

next case upon the subject, iii chronological order, in the State
of Ifew York, was in the late Court of Chancery of the State.
It was a motion to dissolve an injunction issued upon a biU filed to
cancel a mortgage on the ground of usury. The bill charged that
a part of the consideration of the mortgage was a usurious nego-
tiable note given by the complainant to one Ells, and indorsed by
the latter to the defendant. The defendant denied that he had
any notice of the alleged usury in the note ; and insisted that he
30
,
234 LAW OF USURY.
was a honafide holder of the note for a valuable consideration;

that he subsequently got it discounted at the bank, and the note
not being paid when it became due, Ells and himself were duly
charged as indorsers together with another indorser whose
;
indorsement Ells had procured previous to the sale of the note to
the complainant. The chancellor decide^, that to render a con-

tract usurious, both parties must be cognizant of the facts which
constitute usury and that if a iooia fide holder of a negotiable
;
note, which was tainted with usury in the hands of the payee,
receives from the maker a new security for the debt and gives up
the note without any knowledge of the usury, the security which
he takes in lieu of it is not usurious; thereby affirming the
doctrine laid down in the case in Connecticut hereinbefore referred
to. The chancellor, in giving his opinion, said :
" If the state-
ment in the answer is and it must be taken to be so upon

true,
this application, this mortgage is not usurious, although the money
secured by it includes the usurious premium which was originally
embraced in the note to Ells. To reiider a contract usurious, both
parties to the contract must be cognizant of the facts which con-
stitute the loan. And if a bona fide holder of a negotiable note,
which was tainted with usury in the hands of the original payee,
receives from the maker a new security for the debt, and gives up
the note, without any knowledge of the usury, the security which
he takes in lieu of it is not usurious (GuthbeH v. Haley, 8 T. R.,
390). It is true the defendant could not have recovered against
the maker of the note in this case upon the original contract,
which was void even in the hands of a bona fide holder " {Aldrich
V. Reynolds, 1 Barb. Gh. R., 43, 44).
The Court of Appeals of the State of New York have held that
the taking or reserving of more than the legal amount of interest,
through an error in computation, does not constitute usury. The
action was upon a promissory note, and the defendant alleged that
it was void for usury. The evidence showed that the note was
given to take up a previous note, principal and interest, and that
by some error in the calculation the interest was made to amount to
$95.80, whereas the true amount would have been $94.01 so that ;
the note in suit was made for $1.79 more than it ought to have
been. This was the usury complained of but the court at the
;
circuit decided that it was not usury, and directed a verdict for
the plaintiff, to which the defendant excepted.- The judgment
was aiBrmed by the Supreme Court at a General Term, and the
defendant appealed to the Court of Appeals, where the judgment
of the General Term was also affirmed.
Denio, J., inhh opinion, said " The : error in calculation, by
which an excess of less than two dollars was included in one of the
notes, does not make the contract usurious. To constitute usury,
there must be an illegal agreement, and this cannot be predicated
of a case in which the excess was the result of accident or inad-
vertence, without any knowledge that more than seven per cent
was incurred by the contract. This has been repeatedly decided."
And Crippen, J., said " : A
mistake in the computation of the
interest will not make the loan usurious. The mistake, in this
case, is shown by the testimoy of Mr. Gould to have arisen from
inadvertence, and not from design. In order to establish usury,
a corrupt agreement must be shown to exist. No such agreement
was made out by the testimony in this case. My conclusion is that
the judgment should be affirmed" {Marvine v. Symers, 12 JV. Y.
E^ 223, 231, 236).
In the State of Massachusetts, a case has been decided recogniz-
ing the same general doctrine. The action was brought against an
executor to recover the statute penalty for receiving usurious inte-
rest reserved in a security given to the testator, and paid by the
party to the executor without objection or notice to him that usury
was reserved in the original contract. The Superior Court, at the
trial, held that on the facts alleged the action would not lie, and
directed a verdict for the defendant. The plaintiffs alleged excep-
tions,which, by the Supreme Judicial Court, were overruled. Chap-
man, in his opinion, said " It appears that the plaintiff had given
:
to the testator a note, in which unlawful interest was reserved.

The -note was secured by mortgage, and the defendant as executor
brought an action for foreclosure. Whereupon the plaintiff paid
the note, including the usurious interest, without giving the
defendant any notice that there was such interest resei-ved, and the
defendant received it without knowledge of the fact. * * *
The money paid to the executor has gone to the estate, wliile he
must pay, de bonis proj)rus, the amount of the judgment recov-
ered against him. He wiU pay it as a penalty for having violated
the usury laws. In favor of an innocent person, the greatest
strictness ought to be held otherwise the law would enable the
;
plaintiff unjustly to ensnare him. It may be further remarked

236 LAW OF USUET.
that, ia the when usury was regarded as a much graver

times
offense than it now is, a usurious intent was necessary to be
averred and proved in order to make a party liable to the penalty
{N. Y. Fwemm^s Ins. Co. v. EVy, 2 Cow., 678 Archibald v. ;
Thomas, 3 Cow., 289). And such an intent is negatived in the

present case " {Heath v. Cook, 1 Allen's B., 59, 60).
In an early case in the State of Virginia, the court held that the
mistake of a scrivener in putting one sum for another will not make
the transaction usurious, for the reason that in such a case there is
an absence of the intuition to take more than legal interest, which

intention is requisite in order to constitute usury. In the same
case, however, was held that if a mode of calculating interest,
it
which gives the creditor more than legal interest, is^ adopted, and
the creditor knows it will have that effect, he is guilty of usury,
. altliough he may not suspect that he is violating the law {CMlders
T. Beam,e, 4 Rcmd. B., 406).
And in the State of Maryland, an action was brought upon a
single bill, to which the defense of usury was interposed. It-
appeared in evidence that the bill was given upon a settlement of
an account between the parties, which contained items of debt and
interest and in two of the items the interest, as it was calculated,
;
exceeded the legal rate. The receipt of the bill at the foot of the
account stated that in case of error either way, should any be dis-
covered, it should be corrected. On these facts the court very pro-

perly held that there was no usury, or that the statement of itself
was no evidence of usury {Stochner v. Ethnall, 3 Gill am,d Johns.

B., 123),
So, also, in the State of 'New Hampshire, the court has held that
more than legal interest, reserved or received through a mistake
in c^/lculation, when there was no intention of departure from the
legal rate, is not usurious. Eichardson, C. J., gave the opinion of
the court, and said :
" It seems that there was some mistake in the
calculation of interest for the sum mentioned in this note amounts
;
to more than would have been due upon the first note, casting the
interest at twelve per cent, and whatever may have been included
by mistake cannot be deemed usurious " {Gibson v. Stevens, 3 W.
E. B., 185, 187).
The Supreme Court of Ohio, a long time ago, held that an error
in calcTllation, an accidental omission of a credit, or a transfer by
.mistake of an item from one account to another, will not make a
eeenrity usurions and void, there being no intent to exact or take
unlawful interest {Busby v. Firm, 1 Ohio State R., 409).

In the State of "Wisconsin, the Supreme Court has held, in accord-
ance with the general rule, that, to avoid a contract on the ground
of usury, it must appear that the lender knew the facts, and acted
with a view to evading the law. An action was brought t<j fore-
closea mortgage given to secure the payment of a note for $1,000,

with interest at twelve per cent. The mortgage and note were
. assigned to the plaintiff after they became due. It appeared that
the agent of the borrower procured the loan for him at the highest
rate of interest, and retained three per cent in his own hands,
stating to the borrower, his principal, that the three per cent had
been deducted by the lender. The defense was usury. The Cir-
cuit Court held that the transaction was not usurious, and the '
defendant appealed to the Supreme Court, where the judgment

was affirmed. Dixon, C. J., delivered the opinion of the court,
and said " Usury is a matter of intention, and, to avoid a contract
:
on that ground, it must appear that the lender knew the facts, and
acted with a view of evading the lorn {Otto v. Dwrege, 14 Wis.,
574, <(md eases sited). There is no evidence that Merrill knew
anything about the deduction' of the three per cent by Fay, or
ever agreed to it. The contract was, therefore, valid in the hands
of Merrill ; and, being valid in his hands, it is also valid in the
hands of his assignee, Fay. Fay acted as the agent of Lovejoy in
procuring the loan, retained the three per cent in his own hands,
and then wrote Lovejoy that had been deducted by Merrill.
it
This was a deception on the part of Fay, for which Lovejoy might
have been allowed in this action the sum detained, with interest,
if the facts had been stated in his answer ,• but it did not make the
contract with Merrill usurious" {Fan/ v. Lovôy, 20 Wis. E., 407).
The case in the 14th of Wisconsin was this : A., for the purpose
of raising money, made his note payable to the order of B., draw-
ing the highest rate of interest allowed by law, and requested B.
to seU it for him, and B. sold it at' a dismvmt to C, who " had no
knowledge of the origin of the note," and paid the proceeds to A.
The maker brought his action to have the note declared void for
usury, and the Circuit Court gave judgment for the plaintiff, hold-
ing that the note was usurious. The defendant appealed to the
Supreme Court, where the judgment of the Circuit Court was
reversed ; the Supreme Court holding that the note was not nsu-
238 I'AW OF USURY.
rious. The court held, however, that if the purchaser of the note
had known the character of the paper, or if the transaction had
been attended with circumstances which should reasonably have
aroused his suspicions and put him upon inquiry, the question
would have been different. Dixon, 0. J., in his opinion, said:
" In such cases the law looks behind the shifts and devices of the
parties, and, according to the fact, declares the transaction to be a
loan, and not a sale. But, in order to do this, it must appear that
the supposed purchaser had notice, either actual or derivable from
the circumstances of the case, of the trick or device resorted to,
and, therefore, consented to it ; otherwise he will not be divested

of the character and rights of a purchaser. For usury is a matter
of intention ; and, to render a contract usurious, both parties must
be cognizant of the facts constituting the usury, and have a com-
mon purpose of evading the law. * * * And the intention
on the part of the maker and -seller of the note to commit usury
wiU not, unless communicated or known to the party intending to
make the purchase, supply the want of such intention on his part,
or change his relation to the transaction" (C^to v. Durege, 14 Wis.
B., 571, 5Y4).
And the Supreme Court of the State of Florida has held that
usury cannot result from the act and intention of one of the parties
to the contract alone ; that both parties must concur in the same
design {Haywa/rd v. Le Baron, 4 Fla. B., 404).
And here it may be affirmed that the intent of the parties in
those cases is always a question for the jury, and their finding
upon the subject, if sustained by evidence, is final and conclusive.
In a very late case before the Supreme Court of the State of New
York, it was held that where, in an action upon a promissory note,
the single question to be tried is, whether there was a corrupt and
usurious agreement made upon a loan of money, which was the
consideration of the note, the intent of the parties is a question of
fact ; and when that question is found against the defendants upon,
conflicting evidence, their finding is conclusive, unless some error
was committed on the trial by the judge in his findings or charge
to the jury.. Potter, J., in his opinion, said :
" The intent of the
parties was a question of fact, was found by the
and this question
jury against the defendants. Upon the defendants' theory, and
upon their testimony alone, a jury might have found in their favor.
And so it may be said, also, that upon the plaintiff's theory and
testimony alone it was a clear case of his right to recover. The
jury, having both theories and all the facts before them, have set-
judge -mistook the law at the *

tled all the case, unless the trial.
* * I have examined with some care the rulings of the court on

the trial, and have found none of which the defendants can com-
plain." " The case looks very
Miller, P. J., in his opinion, said :
much like usury ; but I am inclined to think it was a question fpr
the jury whether the arrangement with the bank was for the pur-
pose of evading the usury laws, and concur in the result " (Horton
v. Moot, 60 Ba/rh. E., 27, 28, 30).
Where the alleged usurious interest was actually and in good
faith given and received as a gratuity or gift, the transaction will
not be declared usurious. "Usury consists in the taking or receiv-
ing a greater sum or value for the loan or forbearance of money,
etc., than is prescribed by law ; and contracts and securities can
only be void for usury when there is reserved or taken, or secured
or agreed to be taken, any greater sum for the loan or forbearance
of money, etc., than is prescribed by statute. It is obvious, there-
fore, that when the excess over legal interest is given as a present,
and not as a consideration for the forbearance of money or other
thing, there can be no usury. This has been decided by high
judicial authority.
In a recent case in the present Supreme Court of the State of
New York, the rule was plainly declared. An action was brought
to foreclose a mortgage to secure the payment of $21,537, with
semi-annual interest, executed by the defendant to the plaintiff.
The defense interposed was usury, in that $5,000 was included in
the mortgage as a consideration for extending the time of credit
for the ten years the mortgage was made to run. The aetion was-
tried by a referee, who found that the time was given without
any consideration, and that the $5,000 was inserted in the mort-
gage by the defendant without the knowledge of the plaintiff, and
as a gift voluntarily made by the defendant. The referee, there-
fore,found the mortgage to be a valid security for the amount
actually loaned, and gave judgment accordingly. The defendant
appealed from the judgment entered upon the report of the referee
to the General Term of the Supreme Court, and the judgment of
the referee was affirmed.
Allen, J., in his opinion, said :
" The giving of a sum of money
by the debtor to the creditor, or the including of an amount, in
240 LAW OF USURY.
addition to the actual indebtedness, in a security given for the

real debt, as a gift, will not bring the security within the statute
of usury. It most cases it would be a suspicious cir-
is true, in
cumstance, and would devolve on the court, before uphold-
it
ing the security, to be satisfied that such was the real nature of
the transaction that the nominal gift was not in reality a com-
;
pensation for the forbearance, and so colorable and a shift to evade

the statute. But where it is clearly established that it is in truth
a gift, voluntarily made, having no connection with the time given
for the payment of the debt, the security will be valid, no matter
what may have been the moving cause of the gift with the donor.
If the donee or creditor be innocent of any intent to exact or
receive more than the legal rate ©f interest, his security will be
YsXid? (JVoodruff Y. Bwrsm, 32 Ba/rb. R., 557, 560).
And the doctrine has been illustrated by a stronger case, before
the Supreme Court of the State of Iowa. The sum of seventy-
five dollarswas included in a note as a compensation to the party
for waiting for his pay up to the time of the date of the note,
without any request of the payee and it was found that there was
;
no intention to contract for usury. The court held that the note
was not usurious, under the circumstances shown, but> was valid
and binding for the whole amount.
"Wright, J., delivered the opinion of the court, and said : " The
interest, at seven per«cent, for the time he had been kept out of
his money, would have amounted to more than half the seventy-
five dollars; and really, no one would say, that the additional
thirty dollars was an unreasonable compensation for his delay and ;
finally, when it was put in at the maker's instance, and not as the
result of any contract to pay so much interest, it would be almost

impossible to conceive of a case where there was a more complete
absence .of a corrupt agreement " (Jones v. BerryMll, 25 Iowa
JR., 289).
Perhaps reference may as well be made here as anywhere to

some cases settling the rule in respect to contracts for compound
interest ; .that is, the adding of the growing interest of any sum to
the sum and then the taking of interest upon this accumula-
itself,
tion ; and to which the transactions have been h^ld not

cases in
to be usurious. Sometimes the practice is regulated and sanctioned
by statute, and in other cases it is settled by the courts. At an
early (Jay in the history of English jijrisprBdence, such contracts
;
TBANSAdTTONS NOT USURIOUS. 241
were COtisid'ei-ed illegal, and within the statute of usury; and

courts of equity in this country have held to the same rule. That
is to say,they have held that compound interest is not forbidden
by the statute against usury, but that it is iniquitous and will not
be allowed, though it was agreed^ to -by the parties. Indeed, it is
doubtless settled in England, and in mbst of the United States,
that this excess of interest cannot be collected by law, unless upon-
an agreement to pay it, made after the day of payment has passed.
But it is equally clear, from the authorities, that if it be paid vol-
untaril/y it is not usury.

In ah early case in the English High Court of Chancery, where
upon a petition to be admitted to prove under a commission of
bankruptcy that in settling accounts half-yearly interest had been
turned into principal, and on the other side it Was contendedihat,
admitting an antecedent contract for compound interest to be ille-
gal, parties might settle accounts, even half-yearly, upon that prin-
Lord Eldon, chancellor, said " As to the question of
ciple, :
compound interest, it is clâr we cannot, a priori, agree to let a

man have money for twelve months, settling the balance at the
end of six ihonths, and that the interest shall carry interest for the
subsequent six months that is, you cannot contract for naore
;
than five per cent, agreeing to forbear six months'; but, if you
agree to settle accounts at the end of six months, that not being
part of the prior contract^ and then stipulate that you will forbear
for six months upon these terms, that is legal. So this is legal
between merchants, where there is no agreement to lend to either,
but they stipulate for mutual transactions, each making advances
and that if, at the end of six months, the balance is with A., he will
lend to B. and vice versa. That sort of transaction has taken place, I
admit, generally. That cannot be applied to the case of a real secu-
rity and you may not, when the debt comes to a certain sum, take a
;
real security and is.\r per cent. I dp not know if that will do in
a mercantile transaction. It is not enough to say, in this case,
that their accounts have been settled from half year to half year,
and, therefore, it is legal to take interest in this way, for the trans-
actions may be evidence of previous agreements " {Expwrte Bevcm,

9 Yes., Jr., R., 233). So, where the defendants were sued by their
bankers for a balance of an account, and appeared that every it
quarter the bankers struck a balance, in which were included the

principal gum of money adv^^nced, all interest due upon it and a
242 LAW OF USURY.
commission of fivre shillings for every £100 advanced, which bal-
ance at the end of the quarter having been handed to the defend-
ants was converted into principal and made to convey interest,
the Court of Exchequer declared themselves strongly of the
opinion that this case was not usurious, but that the striking of a
balance every quarter brought it to a fresh agreement at the
beginning of each quarter to lend, the sum due {OaUot v. Walkei;
2 Austr. JR., 4:96). ,
And in another case in the Exchequer Chamber in Error it was

held that a memorandum indorsed on a bond which was condi-
tioned for the payment of £100 by quarterly payments of £5 each
and interest at £5 per cent ; " that at the end of each year the year's
interestdue was to be added to the principal, and then the £20
rec^ved in the course of the year was to be deducted and the balance
to remain as principal, and so continue, yearly, till both prin-
cipal and interest were fully paid," was not usurious. Lord Chief
Justice Eyre said " The court must strain the words of the con-
:
tract in order to make it usurious. It was not the interest on

£100, but the interest due, that was to be added to the principal at
the end of the year, and the interest due could only be taken
to mean what was legally due" {JI(miiltonY. Le Orange, 2 E..
Black. R., 144, 145).

In the old Supreme Court of the State of Ifew York an action
of assumpsit wasbroughtonfourpromissory notes, given on settle-
ment of accounts, made as follows : On the 22d November, 1819,

the defendant was charged with a bill of goods amounting to
$2,211.49, and after charging interest and deducting some items
of credit, a balance was struck on the 5th February, 1821, of
$2,217.31, the interest of which sum was then charged up to the
5th February, 1822, and added to the principal, making $2,374.64;
on which last sum, composed of principal and interest, interest
was charged for. one year seven months and thirteen days, up to the
18th September, 1823, the date of the not,es, and added to the last
sum, making, together, $2,643.85, for which the notes declared on
were given. The defendant insisted that the notes were usurious, and
the judge at the Circuit so held, and, thereupon, nonsuited the
plaintiff. The plaintlfiE then made a motion in the Supreme Court
to set aside the nonsuit, which was granted and a new trial ordered,
the court holding that a note given on the settlement of an account,

jp which compou^4 interest is charged, is not usurious,
TRANSACTIONS NOT USUMIOUS. 243
Sutherland, J., gave the opinion of the court and said :
" Com-
pound interest has nothing to do with the question of usury. It
is upon a different principle. Interest, annually compounded

illegal
and added to the principal, does not give the creditor more than
seven per cent per annum for his money and unless a rate of ;
interest greater than that be taken, there is no usury. * * *

Interest is justly and equitably due at the end of each yeai*, if pay-
able annually ; and if the debtor, instead of paying it, gives his note
or bond for it, there is no legal objection to enforcing its payment.
If the interest is carried into an account-current, and the debtor
gives his note for the balance of the account, it stands in principle
upon the same footing" {Kellogg v. Hickok, 1 Wend. H., 521,
522). This case has been expressly recognized as authority by the
present Supreme Court of the State, in which it was held that an
agreement to pay interest upon interest, due at the time the
promise is made, is not usurious and may be enforced.
Sill, J., who gave the opinion of the court, said :
" The objec-
tion that the note is usurious is not tenable. One witness says
that $100 of it is made up of interest upon interest. This does
not constitute Msurj" {Tyler r. Tates, 3 Barb. E., 222, 225).
The courts of North Carolina, at an early day, decided that, as
a general rule, interest on interest is not allowable ; but that, when
the sum is and the annual payment forms a part of it,
ascertained,
and it is so specific that the debt may be sustained, and interest
is reserved by way of damages for the detention, it ought to be
allowed {K&rmon v. Diohen, Cam,. & Norw. H., 357).

So, without multiplying words, or referring to numerous cases,
it seems to be well settled that, although compound interest will
never be allowed, except in special cases, and the agreement there-
for may never be enforced, yet a contract which includes a stipu-
lation to pay it will not be, for that reason simply, usurious, so as
to render the contract, in other respects than the agreement to pay
the compound interest, illegal and void at law ( Vide Connecticut
V. Jackson, 1 Johns. Gh. R., 14; Mowry v. Bishop, 5 Pa/ig^s
R., 98).
In this connection, reference may also be made to the settled
rule in respect to contracts in which it is stipulated that the inte-
rest shall be paid semi-annually, quarterly, and the like. And
here it may be said that, stfictl/y, it is clear that if the lender of a
sum of money, payable with interest for forbearance during a cer'
2A4: LAW OF USURY.
tain term, receive all or any part of the interest during that term
he wiU thereby have taken interest above the statutable rate.
Whether such a transaction vras usurious or not, was a question
about which the early English authorities did not agree ;. although
it seems that a majority of opinions was favorable to the validity
of such an arrangement. But, however the ancient authorities

differ upon the subject, the law now is well settled that such con-
tracts are perfectly valid.
In a case in the late Court of Chancery of the State of New

York, it was held that a note payable one year from date, with
interest quarterly, was not usurious {Mowry v. bishop, 5 Paige's
H., 98). And the question is set at rest by a recent decision of
the Supreme Court of the United States,, which holds that, where
a statute fixes the rate of interest per annum, a contract may law-
fully' be made for the payment of that rate before the principal
comes due,, at periods shorter than a year. The action was upon
a bond of the city of Muscatine, in which the interest was made
payable semi-annually at ten per cent ; and by statute the city had
no power to issue its bonds agreeing to pay interest at a greater
rate than ten per cent per annum. It was- insisted, among other
things, that the bond was not valid, because, in the stipulation to
pay the interest semi-annually, at the rate of ten per cent, the
authority conferred by the vote which limited the rate of interest
to " not higher than ten per cent per annum," was transcended,
and a usurious rate agreed to be paid. Mr. Justice Swayne deliv-
ered the opinion of the court, and disposed of this position of the
defendant in a very few words. He said " This objection has no
:
foundation. When a statute fixes the rate of interest per annum,

it has always been held that parties may lawfully contract for the
payment of that rate, before the principal debt becomes due, at
periods shorter than a year" {Meyer v. The City of Muscatine 1 j
Wall. JR., 384, 391). This authority is decisive upon the subject,
and further citations need not be made. The rule is well settled,
and uniformly recognized in all of the States.
TRANSACTIQNS NOT USURIOUS. 245
CHAPTEE XVIII.
TEAlfSAOTfONS NOT TTSrEIOUS LOAN OS CHATTELS.
> It has been held by the ITew York Court of Appeals, as was
stfl'ted' in a previous chapter, that the statute prohibiting a greater
rate of interest than a specified per cent per annum " for the loan
or forbearance of any money, goods or things in action," is appli-

cable only to those loans which are in substance and effect loans of
money. The true construction of such a statute is held to be rhat no
more than the prescribed rate of interest should be taken on a loan
or forbearance of money, dweoily or indwectly, by way of loan of
goodfe or choses in action, or in any other manner. In a word, it
is held that the^ words " goods and things in action" do not change
the true intent and meaning of the statute in the least,. and that
the statute would be as comprehensive without the specification
of those words as it is with those words contained in it. It is
declared' that the terms " interest " and " forbearance " cannot be
predicated of any other than a loan of money, actual or presumed.
The meaning is, that interest is a certain profit for the use of the
loan; and forbearance, the giving a further day, when the time
origiaally limited for the return of the loan has passed. That both
interest and* forbearance imply that the thing loaned has an estab-
lished' value, so that the lender on its return, with the compensa-
tion fixed bylaw for the use and risk, may receive a "certain
profit." And it is argued that this is true only of moneys which
is legally supposed to have a fixed, unchangeable value in itself,
and be consequently the true medium of the value of all other
to
property. A' fixed rate per cent in money, therefore, in coritefli-
plation of' law, is supposed to give to the lencjer a " certain prbfit,''
because the thing loanedis of the same value at the end -of the
term commencement. This, it is said,
as at its is not true in factj
even of money, and the law does not affirm it to be true of any-,
thing else. From this reasoning it is very properly concluded that
a loan of goods is not within the statute, whatever may be reserved
for their use.
If this conclusion
be correct, it follows, as a matter of course,
that there can be no usury in a loan of chattels, whatever may be
the per centage upon their value agreed to be paid for their use,
246 -Z>-4W OF USURY.
unless such loan is intended as an indirect loan of money. And

this is the doctrine of the authorities. A
strong case illustrating
the rule was early decided by the New Torfe Court of Appeals.
An action of assumpsit was commenced, in 1842, by one Bell
against a man by the name of Kice, in the Recorder's Court of the
city of Buffalo, to recover the amount of a promissory note given
by the defendant to the plaintiff for $337, on the 22d of June,
1841, payable one day after date. The defendant set up as a
defense that the note had its origin in a corrupt and usurious
agreement. On the trial it appeared that the note was given in
payment of a balance due upon the following transaction Bell :
loaned to Eice, on the 1st day of May, 1834, eleven cows, for two
or four years, as Eice might elect, Eice to pay $50.75 on the 1st of
May in each year for their use. Eice agreed to return the cows to
Bell with calf or with calves by their sides, on the 1st of May,
1836- or 1838, as he should elect, worth $203, or pay that amount in
cash. Bell was to sustain all losses that should appear providen-
tial. The contract to this effect was in writing. .The defendant's
counsel, among other things, asked the court to decide that the
agreement was per se usurious, the hazard or- contingency being
such as not to take the agreement out of the statute. The court
refused, and decided that the question whether the agreement was
a fair and honest, one, in consideration of such hazard, should be
left, and was left, to the jury. The defendant's counsel excepted.
The jury found a verdict in favor of the plaintiff for the amount
of the note and interest, and judgment was entered in accordance
with the verdict. The case was then carried to the Supreme Court on
a bill of exceptions, where the judgment of the Eecorder's Court was
reversed and a new-trial ordered. From that decision the plaintifE
appealied to the Court of Appeals, where the judgment of the
Supreme Court was reversed, and that of the Eecorder's Court
aflSrmed.
Gardner, J., delivered the opinion of the court and said:
"According to the contract, as stated in the bill of exceptions, the
parties had in view a loan of cattle, with liberty to the borrower
to convert the loan into a sale, at the time and upon the terms
prescribed in the agreement.
During the continuance of the loan and untU the defendant
made his election, he was to pay a stipulated sum exceeding seven
per cent for the use of the property, which was to remain at the
TEANSA.CTIONS NOT USURIOUS. 247
risk of the lenders for the time specified, as to all accident, not
arising from the negligence or misconduct of the former.

This, I apprehend, is the meaning of that clause in the contract
by which the plaintiffi " was to sustain aU losses that shall appear
to be providential." The agreement, in a word, contemplated a
loan of chattels; and whether the compensation fixed by the agree-
ment did or did not exceed seven per cent per annum upon their
value was immaterial, as the subject of the loan was not within
the statute in relation to usury. * * * Such loans may be
resorted to as a cover for usury, and so may a contract for the sale
of lands. And it is believed that the apparent confusion in some
of the cases has arisen from not discriminating between a loan
of chattels and evidence ten&mg to prove such a contract, in
form, a nlere cloak for an usurious loan. * * * Without con-
sidering the other questions presented, upon the ground that this
was a loan in fact as well as in form, the subject of which is not
within the provisions of the statute against usury, the judgment
of the Supreme Court must be reversed, and that of the Recorder's
Court affirmed" {Bell v. Mice, 6 W. Y. E., 315, 317, 319).
The same doctrine has been repeatedly sanctioned and acted
upon by the old Supreme Court of the State of New York.
To take the cases in chronological order, the first to which
reference is made was an action of assumpsit upon a written con-
tract made by the defendants in these words "April 15th, 1819. :
For value received, we promise to pay and deliver to John Spencer,

or bearer, $360, or twelvegood middling cows, and twelve good
calves which come by said cows above mentioned, to be paid and
delivered at the dwelling house of said Spencer now is in, four
years from the date, in Verona said cows not to exceed eight
;
years old, nor under four years old. As witness our hand." The
defense was usury and the evidence to sustaia the defense was,
;
that the plaintiff, a few days before the date of the agreement,
agreed with the defendants to let them have six, cows for four
years and that the defendants, at the end of the term, should
;
return him twelve cows with calf, or with calves by their sides, or
pay him thirty dollars each for the six cows. The plaintiff admit-
ted it was more than the cows were worth
but said he would put
;
them at that sum and have the cows again. He

so as to be sure
said, at the same time, that his bargain was as good as twenty-five
per cent interest. On the day the contract was executed, the
;
248 LAW OF USVRT.
plaintiff reiterated substa^tiaIIy the same thing. The defendants

also proved that the cows were not worth more than nin,eteen
dollars each ; in the whole, $114:. The defendants also proved,
under an objection, that twelve good middling cows, with calves
by their sides, would, on the 15th April, 1823, have beon, wortli
The plaintiff proved that, at the date of the contract, cows were
worth about one-fifth more thaoi in 1823
-
; and that the usual
practice of letting cows was to double in four years ; the party
letting usually taking part of all risk of accidents. The defend-
ants objected to the proof of usage, bi;t the objection was overruled.
The judge at the circuit then said: That if it was agreed, or
intended by the parties, that the plaintiff should receive above
seven per cent interest, the note would be void for usury ; and
he should consider that as a question of fact for the jury to decide.
He held, however, if the plaintiff was entitled -to recover at all,
the |360 was to be considered in the nature of a penalty ; and the

plaintiff could not recover above the twelve cows and calves when
they became due, with interest to the qua/rto die post, being |208
and therefore a verdict for that sum was taken for the plaintiff,
subject to the opinion of the court on the case as presented, and
under an agreement that the court should give judgment, or set
aside or modify the verdict, according as they should hold th^ law
to be. The case was very ably argued in the Supreme Court, and
it was there held that the verdict was right.
Savage, Ch. J., delivered the opinion of the court, and said:
" The contract was not usurious though the plaintiff was a very
;
hard and unconscionable creditor. The interest and principal

were both put at hazard to a considerable extent. It was uncer-
tain, in 1819, what would be the value of the cows in 1823. If
the hazard be slight, and merely colorable, it will not take the
case out of the statute but I do not consider it so in this case.
;
Here was no negotiation for a loan of money. It was a bargain

by which the plaintiff was pretty certain of making a handsome
profit but by which he -might lose.
;
I think the $360 in the contract must be considered as a penalty.

The verdict is, therefore, right, and the plaintiff entitled to judg-
ment for the $208 " {Spencer v. TUden, 5 Cow. B., 144, 148-150),
The Supreme Court had, at a previous term, made a similar
decision in a case which is reported in a note to the easeof /êwce?-
:
TBANSAOTIONS NOT USUBJOUS. 249
V. Tilden- Tlje case was a certiorari, to a justices' court. Wet-

more sued Holmes in the court below on the following agreement
August 26th, 1819. Ebenezer Holmes received
" Whitestown,
of Ezra "Wetmore ten ewe sheep, for which I promise to deliver

twenty sheep of as good' quality, three years from date.
" EBENEZEE HOLMES."
Plea, the general issue. On the trial, sheep, in August, 1822,
were proved to be worth one doUar per head. The justice gave
judgment for the plaintifE for twenty dollars damages and the
cpsts; and his judgmpi^t was affirmed {SolmesY. Wetmore, 5 Cow.
B., 14;9, ôte, a).
In, the case of Holmes v. Wei/more, usury was not interposed as

a defense, to be sure; and yet from that fact, and from the fact
that there is not an intimation that the case might be One tainted
by usury, the inference is reasonably fair that the court considered
i]ia.%.^^'b(^MX^fi^ letting of sheep, to double in three years, is not
usurious,
The, next cage in order was a, writ of error from the Oneida
GJQmmon Plâs, "Willianis snediGqrnmings in. a, justices' court, and
dpelared: on a, contract bearing date 12th May, 1824, by which
Cummings a,cknowledged tp have received of "Williams a two-
year old heifer and; calf > and agreed within four years, to return
the same heifer, and she to be with calf, and also another heifer
three years old, a,lso to be with calf; WUliams only incurring the
risk qf the, heifer received by light-
by Cumrnings being killed
ning. The defendant pleaded usury, and a jury by whom the
case was tried gave, a verdict for the plaintiff for twenty-seven
dollars. The defendant appealed to the Common Pleas of Oneida,
and on the trial the contractj was put in. evidence and proof given
as to the value of the .property.
The defendant moved for a nonsnitf on the ground that the con-
tract was usurious. The motion was denied. The defendant then
offered to prove, for. the purpose of showing that the contract was
usurious, that the heifer received by him: was not worth, at the time
of the contract, over ten dollars that cows six years old with calf
;
were worth twice as much as two year old heifers with calf; and
that three year old heifers with calf were worth one-third more,
than. two year old heifers with calf. This evidence was rejected by
the court, and the defendant excepted. The jury found a verdict
32
250 i-4Jf OF USURY.
for the plaintiff, with thirty-five dollars damages, on which judg-

ment was entered, and a writ of error sued out. The judgment
of the Court of Common Pleas was aflflrmed by the Supreme
Court.
Marcy, J., delivered the opinion of the court, and said :
" The
facts of this case differ somewhat from those in Spencer v. Tildm

(5 Gow., 144) ; but the difference is not so great (viewing it to be
a loan, as that was) as to the application of a principle of
call for
law different from the one which controlled that case. There was,
perhaps, more certainty in this case that the property to be returned
at the end of four years would be worth that advanced, with the
addition of seven per cent per annum to its value, than there was
in the case of Spencer v. Tilden; but there was a contingency (a
remote one, it is true) that the whole might be lost. There is
great difficulty in laying down rules as to what shall constitute
usury in the loan of specified articles of personal property of fluc-
tuating value. * * * It is very desirable to discourage uncon-

scionable bargains and deprive the extortioners of the anticipated
fruits of their unjust and oppressive dealings ; but while indulging
a solicitude to do this, great caution should be observed to avoid
establishing rules of law which may restrict or interrupt the ordi-
nary business intercourse of common life. I do not think we ought
to pronounce the contract in this case usurious " {Owmmvngg v.
WilUams, 4 Wend. B., 679, 681).
The next and last reported case in the old Supreme Court of New
Tork upon the subject came up on error from the Washington
Common Pleas. Hall let Haggart & Keynolds have fifty merino
sheep in consideration whereof, Haggart & Keynolds agreed to
;
pay to Hall annually fifty cents per head for each sheep, and, on
receiving a year's notice, return to him the same nvmher of sheep,
and of the same quality and age, as nearly so as possible the eon- ;
tract to continue for such length of time as Hall should choose.

Hall brought a suit in a justices' court to recover twenty-five dol-
.lars, due end of the first year, and obtained judgment.
at the
The was removed into the Washington Common Pleas by
case
appeal, and on the trial in that court the defendants offered to
prove that the sheep, severally, were not worth a sum which, at an
interest of seven per cent per annum, would produce fifty cents
per year, and insisted that such fact, if established, would show the
contract to be usurious. This testimony was objected to by the
;
TRANSACTIONS NOT USHBIOUS. 251
plaintifE,but the court overruled the objection, and held that it

was admissible, and that, if the fact offered to be proved should be
established, the contract was usurious and void. The defendants
thereupon proved that the value of the sheep was only from three
to ,ftve doUars per head. The plaintiff offered to prove that the
wool alone of the sheep was worth one dollar per pound, and that
it was the universal custom to let sheep foi- a pound of wool per
head which evidence was rejected by the court. "Whereupon the

;
and he sued out a writ of eri'or. The

court nonsuited the plaintiff,
Supreme Court reversed the judgment of the Common Pleas, and
ordered that a venire de novo be issued from the court below
holding that the transaction was not necessarily usurious, as it
appeared on the trial in the court below ; that the contract was not
'usurious if it depended upon contmgencies whether on the return
of the property the lender would have received more than the
value of the property at the time of the making of the contract,
and the interest thereof at the ordinary rate ; and, further, that in
suits on contracts of the kind involved in that case, the question
whether the contract was a device or shift to evade the statute of

usury should be' submitted to a jury. Cowen, J., delivered the
opinion of the court, and said " The question presented by this
:
bill of exceptions is by no means

free from difficulty. There are
several cases which clearly sanction the contract, looking at its face,
so far as the mere loan of the sheep is in question. * * * In
the case at bar, the sheep were loaned for one year certain, and so
from year to year, so long as the lender chose, with a stipulation
to return the same number, of the same quality and age, as nearly
as possible, on one year's notice. So far there could be no chance
of profit, except the rise of value in the market; and there, might
be considerable loss from the depreciation in value. The direct
and certain income lay in the fifty cents per head, which is con-
ceded to have been more than seven per cent on the cash value at
the time of the loan. * * * It appears to me that there is a
series of cases in point, with regard to like dealings in other pro-
perty, against this transaction being considered usurious per se.
* * * No
doubt that, in any of the cases decided by this court,
had the jury found that the doubling of the cattle or sheep to have
been a mere shift for evading the statute, those contracts would
have been adjudged void and a finding pf the jury seems to me
;
to be the true way of settling such questions.

;
252 i-4W OF USURY.
The court below held that the giving of fifty cents per annum,
under sheep worth less than the cash principal
this contract, for
of that sum, avoided the contract, independent of aU question as

to the present value or depreciation. The fall in the market
might have led the plaintifE to exercise his right of election
unfavorable for the defendants. "Whereas, there' could be no
ground for unreasonable delay, if sheep had continued as valuable
as the plaintiff proposed to show they were at the time. Agaiuj
they might have suddenly risen in the market, so that the rent
should have been more ; and yet, brfore the year's notice could call
them in, have fallen to very little. This whole arrangement may
well be regarded,, like the case of the final settlement certificates^
or the salt, mere bargain of hazard, or the jury might well

as a
have pronounced it a fraud on the statute, for aught I know. I
think their opinion should have been takent" {Hall v. Haggmi, 17
Fem^. ^.,,280, 282, 284, 285).
In this case, and in the case of G-wmmmg^ v. Williams (4
Wend. R.,, 680), the lenders, it will be perceived, were to receive
the capital loaned, at all events,- with more than the' legal rate of
interest for its use. This would have been usury in a loan of
money, beyond question. It wonld have been usury in a loan of
chattels, also, if they- were within the statute and yet the con-
;
tracts in both cases were pronounced valid by the Supreme Court

and the soundness of these decisions was not questioned, but
rather sanctioned by the Court of Appeals in the case of v. B^
Bioe, before referred to^
The principle of the New York cases has been sanctioned in
other States. A very strong case is found in the early Connecti-

cut-reports. The casewas one of a loan of $16,839 of final cer-
tificates, to be repaid in the same kind and amount at six months,
and the lender stipulated for the receipt of $1,000 besides the
lawful interest. These certificates were notoriously in a rapid'
course of depreciation and the court sustaihed the contract, and
;
said :
"
To bring a contract within the statute, and the mischief it
was made to prevent, it must be clearly for the repayment of a

greater value than the amount of the loan,- with an advance
thereon, at the rate of six per centum per annum. That it be a
greater quantity, though of the same kind of article, is not suffi-
cient. If the article be of a fluctuating value, and from such
change or diminution of its value as from its nature or the course
TRANSACTIONS NOT tfSURIOUS. 253
of trade it is subject to, it may not at the time of repayment "be

worth more, or so much. A loan of 100 bushels of salt, for exam-
ple, in the year 1783, when it was at twelve shillings, to repay
double the quantity at the end of one year, when it might have
been but f oxu* shillings, would not come within the statute, be the
price what might at the year's end. ISTor would it make a
it
difEerence if it was to repay 106 bushels of salt and a sum of money

besides, provided that both of them might not amount to more
than the value of the loan and six per cent interest thereon.
With regard to the final settlement certificates said to be loaned
in this case, it is matter of public notoriety that they were, at the
time of the contract, in a state of rapid depreciation ; and that,
having no funds to rest upon for principal or iiiterest', it was
wholly uncertain how low they might fall, and whether, at the
end of months they would, if considered as merchandise (as

six
they must be, to bring them at all within the description of the
statute), be worth half so much as they were when loaned in ;
which case, the plaintiff, instead of giving £300 would lose that
sum and the defendant gain it. The loss by the depreciation was
at the plaintiff's risk. * * * The contract in this case,
though in the form of a loan, was really in the nature of a specu-
lation and bargain of hazard. It depended upon a contingency,
to wit, that of depreciation, whether all or how much of the
principal or value loaned should be repaid, and which of the parties
the speculation should ultimately favor, which takes the contract
entirely out of the statute."
Dyer and Pitkin, JJ., dissented upon the express words of the
statute, which prohibited the loan of other articles as well as
money for more than the legal rate of interest and they denied ;
that, where the principal is to be made good in kind, more than
the legal rate of interest could be reserved, under prete.nse of

indemnity for depreciation. A majority of the court, however,
held that the contract, though in the form of a loan, was really in
the nature of a speculation and bargain of hazard, and, therefore, not
subject to the taint of usury {Hamlin v. Fiteh, Kvrby's B., 260).
In some of the States, as in Massachusetts, while their usury
laws were in force, and in Vermont, the statute of usury excepts from
its operation the letting of cattle according to the custom among
farmers. But it seems, from an early case in Yermont,, without
; ;
254 LAW OF USURY.
such exception, their courts wotild feel themselves bound to deny

the application of the statute.
Collamer, J., delivered the opinion of the court, and said :
" In
relation to the letting of cattle, etc., which the provision of our

statute permits to be done, agreeable to the usage of farmers, it
was decided by county of Franklin, while Ch. J.

this court in the
Skinner presided, and in a more recent case in the county of Chit-
tenden, that such letting is not usurious, though the risk of the
lives of the cattle be on the hirer, and though an unqualified note
to deliver a certain number of cattle be taken, if such was the
usage. This is not only within the proviso of the statute, but is
sustained by the case of Spencer v. Tilden (5 Cowen, 144), where

it was decided that selUng cows, etc., on a contract to return dou-
ble the number atthe end of two years, is not usurious also the ;
•
same point as to sheep, in Holmes v. Wetmore, 5 Oowen, 144, note

( Whipple V. Powers, 7 Vt. B., 457).
The same general doctrine was recognized by the Supreme

Court of the State of Iowa, in a case involving the validity of an
agreement by a purchase of a lot of sheep, to pay therefor a speci-
fied sum of money and " two pounds of wool per year for each
sheep so sold and delivered for two years," the court held that the
agreement was not necessarily usurious, and sustained the transac-
National Ba/rik v. Owen, 23 Iowa B., 185). And the

tion {First
Supreme Court of Florida has held that a contract to pay a bushel
and a half of corn within a year in return for one bushel, is not
within the statute of usury, owing to uncertainty and fluctuating
character and value of the article {Morrison v. MoKvnnon, 12
FU. B., 552).
It is well settled by the authorities, therefore, that there can be
no usury in cases of a sale or loan of chattels, provided the trans-
action be in good faith, what it purports on its- face. The cases all
proceed upon the doctrine that the value of everything which can
be the subject of a loan, except money, is subject to fluctuation
and consequently that an individual who loans five bushels of
wheat to receive ten after harvest, or who loans any other chattel
to be returned in kind again, may, at the end of the term, from
the depreciation of the commodity, receive in value less than he
parted with, interest included, and, consequently, such transactions
are excepted from the statute against usury.
TBANSACnONS NOT USURTOUS. -255
CHAPTEE XIX.
TEAN8AOnON8 NOT USUEIOrS —

MISCELLAIfEOFS OASES HELD TO BB
FEEE EBOM THE TAINT OF tTSTEET.
Theee are numerous eases, important in their nature, which have

been held by the courts not to be usurious, and which cannot pro-
perly be classed under the heads named in any of the preceding
chapters, but which, nevertheless, illustrate transactions constantly
arising in practice, alleged to be tainted with usury. A separate
chapter will, therefore, be devoted to the consideration of these
cases, without particular regard to their nature or where they were
decided ; but they will, nevertheless, be set down in their chrono-
logical order.
The first to which reference will bemade was decided by the
English- Court of King's Bench, in 1803. The action was for usury
against the acceptor of a bill of exchange drawn on the defendant
and payable to the order of the drawes, thirty days after date.
The bill was presented to the defendant for acceptance eighteen
days before was due, when it was agreed between the parties that
it
the defendant should then pay the bill upon an allowance of six-
pence in the pound, which he said was his usual charge upon such
occasions and he accordingly paid the amount upon those terms
;
to the holder, who thereupon gave up the bill. Subsequently a

qui tarn action was brought for the usury, and these facts appear-
ing at the trial before Lord EHenborough, C. J., it was objected on
behalf of the defendant that this was no loan or forbearcmoe, as

between these parties, which it was laid in the declaration, and
which was necessary to constitute usury that there could be no
;
borrowing unless there was an obligation to repay, which was not

the ease here but that the transaction was nothing more than an
;
anticipation of payment, for which accommodation it might be

even admitted that the defendant had taken more than an ade-
quate consideration, but that would not constitute usury. His
lordship thought the objection well founded, and nonsuited the
plain tifE. A motion was made to set aside the nonsuit, when it
was argued that if the transaction was not to be considered usuri-
ous, on the ground that it was only an anticipation of payment,
for which a party was at liberty to take what rate of interest he
pleased, it would be very wrong to evade the statute of usury by
;
256 hAW 'OF USURY.
framing the securities in this form. . But the court, in l(mo, took
the same view of the case as the chief jiistice did at the trial, and
the rule for a new trial was refused {Ba/rclwy v. Walmaley, ÊosUb
B., 55).
The next case in order to which reference will be made was
decided by \k& old Supreme Court of the State of NeW York, in
1832. The was upon a promissory note given for the con-
action
sideration of a note which was made for the payment of 'a particu-
lar sum, with interest from a day certain to the date thereof, and
which was sold to the maker of the note in suit for the face of it,
principal,and interest computed from its date to the day of sale.
The defense was usury, and it was insisted that the note whicli
was the consideration of the note. in suit was usurious on its face
and it was further insisted that the note in suit was usurious,
because a rebate of interest had not been made oh the interest
charged on the note taken by the defendant, which had not become
due at the time of the transaction between the parties. The
judge at the circuit decided that neither of these facts afforded
evidence of usury, to which the defendaiit excepted. The plain-
tiff obtained a verdict, and the defendant moved the Supreme

Court for a new trial, insisting that the decision of the circuit
judge was erroneous ; but judgment was ordered for the plaintiff.
Savage, Ch. J., delivered the opinion of the court, and said:
" The first objection is, that the" original notes were usurious upon
their face, and, therefore, the present plaintiffs had notice of usury.
It is true that the notes promise the payment of interest from a
time anterior to the date of the notes, and if the notes were to be
considered as evidence of money lent at this date, there would
perhaps be more than seven per cent reserved ; but it is well
known that notes are given for property sold, and upon business
transactions, as well as for money lent; usury is a defense which
must be strictly proved, and the court will not presume a state of
facts to sustain that defense, where the instrument is consistent
with correct dealing, * * * Another ground of iwury relied
on is, that interest was cast upon the notes which had not become
payable, and included in the defendants' notes. The answer is that
no interest was had not in fact accrued, though it was
cast Which,
not payable because the principal was not payable but there was ;
no usury" {Martin v. Feeter, 8 Wend. B., 533, 534).

The third case which will be considered was decided by the preseat
;
TBANSAGTI0N8 NOT USURIOUS. 257

Supreme Oourt of the State of ISTew York in 1847. It was a ease in
equity, and came before the court upon exceptions to the master's
report. It appeared that the defendant had procured the loan of
uncurrent money, and the debt contracted for snch uncurrent money
had gone into a judgment against the defendant, and the plaintiff
therein claimed to have certain surplus moneys, iuTolvedin the case
before the master, applied ta the payment of his judgment. The
claim was resisted by a subsequent judgment creditor of the defend-
ant, on the ground that the former judgment was for a usurious loan,
and therefore void and the master so decided, and accordingly

;
reported that the plaintiff in the latter judgment was entitled to

the surplus moneys to apply on his judgment. To this report the
plaintiff in the former judgment excepted. The evidence before,
the master was that the party kept an exchange office, and was in
the habit of lending uncurrent money, to be paid in current funds
that from time to time he had loaned to the defendant uncurrent
money and the condition of the loans was generally that they
;
should be repaid in current money in a week; that the dis-

count upon the money thus loaned would not average over three-
fourths of one per cent, and that it could pass current in the mar-
ket in the way of trade. The court decided that the transaction
was not usurious, and therefore allowed the exceptions to the
master's report. Harris, J., who decided the case at Special Term,
said :
" I do not think the facts furnish sufficient evidence to jus-
tify the court in attaching to the transaction the taint of usury.

There certainly is nothing upon the face of the transaction that
imputes usury, nor do I think the evidence warrants the conclusion
that there was any corrupt agreement or device to receive or take
more than the legal rate of interest. There is nothing in the case
to show that the uncurrent money received by Duff and Ivers
was not the bills of specie-paying banks. Indeed, the small dis-
count at which these bills might be converted into specie furnishes
satisfactory evidence that the bills were such as would be promptly
redeemed, when presented at the counter of the banks by which
they were issued. Such bills, it is well known, are, for all the
ordinary purposes of money, equivalent to the same amount of
specie. And unless there is something in the transaction from
which it is to be inferred, as a matter of fact, that the transaction
was a mere contrivance to obtain more than the legal rate of
interest, by loaning bills which were not intrinsically worth their
258 LAW OP USUMT.
nominal amount, the statute has hot been violated. * * * j

think the transaction under consideration may fairly he regarded
as a mere exchange of credits. Benters held the notes of certain
banks which to him were of par value, because payment could
have been enforced, and which to Duff and Ivers were equal in
value to gold and silver, because they would pass current in the
payment of their debts. The exchange was
a mutual accommo-
dation to both parties. * * *
There was no disguise in the
transaction. It was in fact what it purported to be, a mere'
exchange of bank bills, held by one of the parties, whose market-
able valae was a little less than par, for the check of the other
party payable at a future day, an exchange in which both parties
supposed they had obtained an equivalent value. I can see no
ground upon which a legal objection to the transaction can be
founded" {Slossen v. Duf, 1 Bari. E., 432, 434^-436).
The fourth case which will be referred to was decided by the
New York Court of Appeals in 1851. The action involved the
validity of certain promissory notes dated at Appalachicola, in the
State of Florida, payable on time, with interest at eight per cent
per annum. The Superior Court of the city of New York, in
which the cause was commenced and tried, gave judgment in
favor of the -plaintiff, holding that the notes were not usurious;
the Supreme Court afiBrmed the judgment, and the defendant
appealed to the Court of Appeals, where the judgment of the
Supreme Court was aflSrmed. Gardner, J., delivered the opinion
of the court, and said :
'*
Another point made is, that the notes
are usurious upon their face. The answer to this point is
found in the facts stated in the declaration, to wit: that' the
notes and the assumpsit of th§ defendant were made at Appalachi-

cola, in the State of Florida. That the rate of interest was regu-
lated by statute in that State, or that the common law prevails
there, are mere matters of conjecture. Suspicion alone wUl not
invalidate a contract, and there is nothing else in the case"
{bmis Garr, 6 N. Y. R., 124, 133, 134).
V.
The fifth case which will be considered was decided by the
Supreme Court of the State of New York, in February, 1853, and

was an appeal from the report of a referee. The defendant had a
drover's bill against a butcher for three head of cattle, amounting
to $187.50, payable strictly in twenty-one, but according to ordi-
pary usage in thirty days, applied to the plaintiff to collect it for
him, and in the meanwhile to make him an advance. The plain-
tiffcharged him $1.87, as for commissions on collecting; $1.09, as

for thirty days' interest and gave him in cash $184.54 ; taking his
;
promise to pay the $187.50, if not collected from the butcher

within thirty days. The defendant interposed the defense of
usury; but the referee overruled the defense, and gave judgment
from which the defendant appealed to the Gene-
for the plaintiff,
ral Term of the Supreme Court, where the judgment was affirmed.
Roosevelt, J., delivered the opinion of the court, and said " This :
case presents a question of usury so small as to be imperceptible

to the naked eye. A technical microscope, and one of no ordinary
power, is indispensable to enable the observer to discover it. A
charge of nine days interest — possible, but neither- probable nor
contemplated — on $187.50, is one of the usurious items complained
of." After stating the facts, the learned judge proceeds :
" Such a
transaction, in my view, is substantially an assignment of a demand
not yet due for a consideration estimated upon the basis of the
probable loss of interest and the certainty of trouble, risk and
responsibility; accompanied, however, oh the part of the assignor,
by a guaranty for the payment of the demand.
" The action now brought is virtually on the guaranty, and unless
it can be shown that the form of the assignment with guaranty
was resorted to as a mere cover for usury, any inadequacy of con-
sideration, if it really existed, can only be set up by way of reduc-
tion of the recovery. * * * There is still, however, another
view of the case. The plaintiffs may be considered as making a
loan of the sum actually advanced in cash, and of the sum of $2.96,
charged by them for trouble, responsibility and delay of payment.
That they might demand their pay before they undertook the ser-
vice, cannot be disputed. Payment of rent, school bills, board,
etc., in advomce, is a thing of every-day oj3currence, We may
then consider the $2.26 as so much paid in advance by the
defendant to the plaintiffs, and then by them loaned to the defend-
ant. What objection can there be to the allowance of interest on
that portion of the loan, more than on the residue ? Can it be
said that this charge was a mere cover ?
" Let us see what the plaintiffs were to do and to be subjected for
this sum of $2.26. They were to advance in cash $184.54 for
twenty-one days certain, and for thirty days probably that being ;
the -usual delay. They were tQ (Jun the batcher, no very agree
260 ^^fl^ OF nSXTRT.
able duty, as the proof shows, for" payment of the bill. If guilty '
of neglect or oversigbt, and the debt should thereby be lost, they

and not the defendant were to be responsible for the loss ; and in
case of a difference of opinion, which on such a subject was not
only very likely but almost certain to arise, they were to take the
risk of a troublesome and expensive litigation.
" To contend that a charge, whether it be denominated interest' '
or commission,' or both, of $2.26, for such a service and such a

'
liability, is unreasonable, would be simply preposterous, unless by
unreasonable he meant unreasonably inadequate. How, then,

without shocking common sense, can it be stigmatized as a shift
or contrivance to evade the statute of usury ? * * * The true
character of this transaction, however, as before stated, is that of a
saleand transfer of the demand, accompanied by a collateral obli-

gation in the nature of a guaranty by the vendor. * * * Our
conclusion is, that the report of the referee in favor of the plain-
tiffiwas right, and ought to be affirmed, with costs " {Hv/rd v.
Hunt, 14 Ba/rb. R., 573-576).
The sixth case in order, which it is proposed to consider, was
decided by the New York Court of Appeals, in June, 1853. The
action was brought to foreclose a mortgage made by the defend-
ant, and by the mortgagee assigned to the plaintifiF, which was
given to secure the payment of $500. The defense was usury, on
the ground that only $450 was loaned, for which the mortgage
was made. The proof showed that in fact only $450 was paid
over to the mortgagor at the time of the execution of the mortgage.
The justice charged the jury at the circuit that, to constitute
usury so as to avoid an obligation, a corrupt agreemfent to pay and
receive more than the lawful rate of interest must be proved that ;
the mere omission of the lender of the money to pay all the $500
at the time of the execution of the bond and mortgage, in the
absence of any agreement, did not make out this usury ; that in
his opinion the evidence fell short of proving the defense of usury,
and that if the "jury found for the plaintiff they must find the
whole amount of the bond, with interest. The defendant requested
the judge to charge the "jury, that if they found that the lender
intentionally withheld fifty dollars at the time oi the execution of
the bond and mortgage, was evidence, unexplained, of a corrupt
it
and usurious agreement. He declined so to charge, but instead

(jharged that the presumption was in favor of the legality, of the
'
TRANSACTIONS NOT tISUBIQUS, 261

trangaetion, to which refusal, and to the whole charge, the defend-
aot excepted.
The jurj found a verdict for the plaintiff for $585.69, upon
which a judgment was entered, and on appeal the judgment was-
affirmed at a Creneral Term of the Supreme Court. The defend-
ant then appealed to the Court of Appeals, where the judgment of
the Supreme Court was affirmed.
•
Morse, J., delivered the opinion of the court and said :
" Was
the intentional withholding from the mortgagor by the mortgagee
of fifty dollars of the sum expressed in the condition of the bond
and mortgage made to secure the payment of $500, with lawful inte-
rest, if unexplained, evidence of a corrupt and usurious agree-
ment.? The manner in which the term evidence was used by the
defendant in his request of the judge to charge, evidently shows
that it was intended to be used in the sense of proof or full and
sufficient evidence, so that a verdict given against the defense of
usury upon that evidence alone and unexplained would he set aside
as against the weight of evidence. * * * It is manifest that
there may be various other causes than '
a corrupt and usurious
agreement for which a mortgagee might ' intentionally withhold
a part of the sum by the bond and mortgage, and which
received
would be perfectly lawful in themselves. The law wUl not pre-
sume a corrupt and usurious or any other unlawful agreement
'
'
from a fact which is equally consistent with a lawful purpose. It

is not an unfrequent ease for a mortgagee to retain a part of the
money loaned which is to form
until the completion of a building,
a part of the mortgage security.There are other contingencies,
to guard against which a part of the amount included in a mort-
gage might be sustained, or to cover a balance of an unsettled
account between the parties. Besides, he who affirms of another
an unlawful act, is bound to affirmative proof of that which makes
the act unlawful, and cannot insist upon a legal presumption of
guilt from an act just as consistent with innocence as with guilt.
* * * I am of opinion that the judgment of the Supreme Court
should be affirmed " {Booth v. Buoezey, 8 W. T. B., 2T6, 278-281,
283).
The seventh case to which reference will be made was decided
by the Supreme Court of the State of New York in April, 1855.
The case was an appeal from a judgment entered at a Special
Term upon the report of a referee. The action was brought to
262 L^w OF vsusr.
recover a large amount of collateral notes and stock transferred

ro the defendant in a certain transaction which was alleged by
it
ihe plaintiff to be usurious. The notes and stock were deposited

with the defendant as collateral security for the payment of
promissory notes given in obtaining a loan of money upon an
agreement that the amount of the collaterals should be appKed to
the payment of the loan when the notes given therefor became
due. The notes deposited as collateral security, as affirmed, were
numerous and for small amounts against various individuals;
and the defendants gave notice to such individuals when their
respective notes fell due, and attended to the collection of the
same.' A portion of the notes became due, and some of them
were paid at various dates prior to the time when notes given for
tibe loan became due, and the amounts credited to the borrower,
but treated like other funds of the defendant held on deposit.

Interest was deducted at the legal rate from the loan when made,
but no interest was allowed by the defendant upon the moneys
received, although they were applied on the note given for the
loan when the same became due. The referee decided that the
transaction was free from usury, and that the plaintiff was not
entitled to have the collaterals delivered up. A judgment was
entered for costs in favor of the defendant, and the plaintiff
appealed to the General Term, where the judgment was affirmed.
Morris, J., delivered the opinion of the court, and said : " There
was no agreement or understanding that usury should bo taken.
The agreement established was the usual and legal one when col-
laterals are deposited as security, and their avails are to be applied
to the payment of the notes when the notes become due. If the
, collaterals were paid before the notes became due, and the bank
used the money, then upon a settlement of accounts the bank
should allow Piatt's estate interest on such moneys. The use of
the money paid on such collaterals cannot be deemed usury in the
notes given by Piatt, unless, at the time of giving his note, the
use oi the money paid upon collaterals, without interest, was a
part of the agreement. The facts reported by the referee show
that such was not the agreement" {Morgcm v. Meohcmio^ Bwnh-
ing Association, 19 Bari. B., 584, 586, 587).
The eighth case in order which will be referred to was decided
by the Superior Court of the city of New Tork, in October, 1857.
The case came before the court, at General Term, on appeal from
;
TliANSACTIONS NOT USUMIOUS. 263
an order modifying au injunction. The plaintiffs filed a bill to

recover back securities pledged by them to the defendant, for
alleged usurious loans.It was charged in the bill that the plain-
tiffsborrowed money of the defendant, for which they gave their
promissory note, which note was renewed from time to time, on.
the payment of extra sums of money, under the name of commis-
sions, or for "extra trouble." The question presented was,
whether a voluntary payment of a mere gratuity by the borrower
to the lender, on the return of a sum of money legally loaned,
necessarily made the next loan between the parties usurious, or
raised a presumption that it was so. The court held that it did
not. It was declared, however, that a long series of successive
loans, running through a period of fifteen months or upward, and
an invariable payment of large premiums on the return of the
money or renewal of the period of credit, would be so suspicious
as to raise a presumption that both parties understood that the
payment of an exorbitant sum was the condition of the successive
loans {Storer v. Goe, 2 Bosw. E., 661).
The ninth case which wiU be considered was decided by the
Supreme Court of the State of New York, in November, 1857,
at a Special Term of the court. The action was brought to fore-
close a mortgage, dated August 1, 1846, but was not, in fact, exe-
cuted, nor the principal sum of money borrowed received by the
defendant, the mortgagor, until the 24th of August, 1846. The
defendant had paid the interest upon it regularly for nine years.
The defendant interposed the plea of usury, predicated upon these
facts. The plaintiff moved fpr judgment on account of the frivo-
lousness of the answer, and the motion was granted. Roosevelt,
J., said : " In the present case the defendants allege that the mort-
gage sought to be foreclosed, although dated on the first of the
month, was not, in fact, executed until the 24th of August, 1846
that it was so dated on the first of the month for the purpose of
reserving a greater rate of interest than seven per cent ; and that
the plaintiff did thereby reserve to himself, for the loan, fourteen
dollars above the lawful There is no averment, it wiU be
rate.
observed, that the fourteen dollars,which constitute the grievance
of the offense charged, were ever exacted or paid, and no interest
is now claimed as due for the nine years prior to 1855. The
defendants, in fact, admit that eighteen installments of interest,
whatever they were, accruing prior to that day, were satisfactorily
;
264 i-4W OW USURY.
arranged and paid. The idea of a recovery, therefore, is clearly

an afterthouglit, and savors strongly of the nature of what the law
denominates '
stale demarnd,^ and which the courts, especially when
sitting in eîiity, invariably discharge. Besides, the defendants'
answer, so far as it alleges facts, and not inferences, may be per-
and yet the loan may have been, as it possibly was,

fectly true,
engaged, and the money actually set apart in the first days of the
month, the intermediate three weeks being devoted to the prepa-
ration of the papers and examination of the title. * * *
Judgment for the plaintiff, with costs " {Bomhs v. Van Anlwerp,
15 How. Pt. R., 29-31).
The tenth case in order which will be referred to was decided
by the Court of Appeals of the State -of New York in 1859, on
appeal from the Supreme Court. The action in the court below
was upon two promissory notes. The defense was, that the notes
were usurious and void. The cause was tried before a referee, who
reported that the two notes were given for the balance of a bank
account, due from the defendant to the Exchange Bank of Buffalo
that the account was for the repayment of checks drawn by said
defendant on said Exchange Bank, payable by their terms in west-
ern and Canada bank bUls, and which were thus paid that neither ;
such western nor Canada bank bills were received by the bank,
or the plaintiff, at par, and they were not bankable at Buffalo, but
were received by merchants in their ordinary deal and in trade, at
their nominal value that there was no agreement between the
;
.plaintiff and defendant that the defendant should draw his checks
payable in Cahada and western bills. On these facts the referee

overruled the defense of usury, and reported in favor of the plain-
tiff. Judgment was entered on the report of the referee, which
was affirmed, on appeal, by the General Term of the Supreme
Court, and the defendant appealed to the Court of Appeals, where
the judgment of the Supreme Court was affirmed.
Grover, J., in his opinion, said " The payment of the defend-
:
ant's checks drawn for western and Canada currency by the

plaintiff in such currency, was not a violation of the statute against
usury. No agreement whatever between the parties, in relation
to these checks, is found by the referee " {Godd v. JSathbone, 19
]V. Y. R., 27, 38).
The eleventh
case which will be considered was decided by the
same court in January, 1854, on appeal from the Supreme Court.
TRANSACTIONS NOT USTTRIOUS. 265
The action was on a promissory note made by one defendant and

indorsed by the others. The defendant set up the defense of
usury, and on the trial at the Circuitit appeared that the maker
of the note was indebted to one Hyde on a note, and went to him,
telling him he wanted to give another note for it; that Hyde said
he would do it on the same terms as before, which was two and a

half per cent per month that he afterward took the note to him
;
and Hyde put his name on the back of it and told the maker to
take it to the bank and get the money, which he did, and with the
money paid the former note. The money was raised by the dis-
count of the- note indorsed by Hyde by the bank. On these facts
the plaintiff requested the judge to hold that there was no evi-
dence to show that the note in suit had ever been the property
of Hyde, and that the plaintiff was entitled to recover. The judge
refused so to decide, but submitted the case to the jury, to which
the plaintiff excepted. The jury found a verdict for the defend-
ant and a. judgment was entered on the verdict, which was reversed
and a new trial ordered at the General Term, and the defendant
then brought an appeal to the Court of Appeals with the usual
stipulation. The Court of Appeals affirmed the order of the
Supreme Court, and ordered judgment absolute for the plaintiff.
Denio, Ch. J., in his opinion, said :
" The plaintiff derives title
to the note from the Auburn Exchange Bank, and if that bank
could maintain an action upon it, the plaintiff is entitled to recover
in this suit. The bank discounted it in the usual course of busi-
ness for Sehenck, the maker, and knew nothing respecting the
transaction between Sehenck and Hyde. If the defense of usury
can be sustained, must be because the note had a legal inception
it
in the hands of Hyde

before it was offered to the bank for dis-
count by Sehenck. The jury here found that it hÂ such an
inception, and the precise question is whether there was any evi-
dence tending to establish that fact suitable to have been submitted
to the, jury. I think there was not.- All that passed between
Sehenck and Hyde was that tie former handed the note to the
latter, who
indorsed it and handed it back. Then Sehenck took
it bank and procured it discounted for his own benefit.
to the
This was a usual transaction between maker and accommodation
Indorser. * * * It follows that this note had its first inception
when the bank discounted it for the maker, and the finding
34
;
266 ^^W OF USURY.
of the jury was without any, even the slightest, evidence to sup-
port it" {KitoheU. Schmclc, 29 N. T. E., 515, 517-519).
The twelfth case to which reference will be made* was decided
by the Supreme Court of the State of New York in May, 1864.
The action was upon a promissory note, and the defendant inter-
posed the defense of usury. The case was tried before a referee.
It appeared that the note was given for the consideration of the
plaintiff's interest in some land. The note was dated back to the
time of the making of the deed for the land, so that it thus drew
interest for some time prior to its date. The referee held that
this did not constitute usury, and gave judgment for the plaintiff.
The defendant appealed to the General Term, where the judgment
was affirmed.
Miller, J., delivered the opinion of the court and said :
" The
note was dated back and provided for interest by the agreement
of 'both the parties, and without some positive evidence to estab-
lish that tihiis was intended as a cover for a usurious transaction,
such an inference must be drawn. * * * The defendant had
been in possession of the farm for some time prior to the execution
of the note, and there would seem to be a propriety in datiQg the
note on the same day as the deed.
As the contract provided no time of payment at the time it was
signed by the plaintiff, it was open for negotiation and arrange-
ment. It is evident that the plaintiff was not aware that any
alteration had been made, and in claiming interest she did not
intend to demand more than she was entitled to. In order to
must be cognizant of the facts which
constitute usury both parties
make out the usurious contract " {Poiiodl v. Jones, 44 Barb. R.,
521, 524).
The thirteenth case which will be referred to was decided by
the New York Court of Appeals in June, 1864, on an appeal from
a judgment of the Supreme Court. The action was upon a pro-
missory note by an indorsee against the maker and an indorser
the defence was usury.
It was in proof on the trial at the Circuit that the note, which
was for |265, was made by the maker for the accommodation of
the indorser and held in his hands to raise money upon for his
use. It was first negotiated to James and Ames Eay, under whom
the plaintiff claimed as indorsee. They advanced to the first
indorser, in a few days after the date, the sum of $250. The
defendants claimed that the difference between this sum and the
amount of the notes was a nsurious premium. The said ^first
indorser testified that he sold the note to the Eays for $250, and
that the business was transacted with James Ray, and he denied
any recollection of any other amount. James Ray testified, among
other things, that the said first indorser pretended to him that he
wanted to raise money for his own accommodation, and indorsed
the note to him for $250, with the understanding that the fifteen
dollars could be arranged fbr at a future time. He positively denied
that he was to have the fifteen dollars for advancing the money,'
and said he did not buy the note, but took it by way of voucher
for the money advanced.
On this evidence the defendants asked the judge to instruct the
jury to render a verdict for the defendants, which he refused to
do, and the defendant excepted. The judge charged the jury that
the note, first had an inception when negotiated by the first
indorser, and if it was sold or discounted at a discount of fifteen
dollars, it was nsurious. But he further charged that if they
found, from the evidence, that the arrangement was that Eay
should discount the note in part, and to the extent of $250, by
advancing that amount upon it, with the understanding that the
note should be held for that sum and interest thereon only, the
transaction would be a valid one, and in legal effect it would be
the same as if the note had been reduced by indorsement to $250
and interest, and then transferred for that sum, and in such case
the plaintiff would be entitled to recover to the amount of $250
and interest thereon. The defendants excepted to the charge.
The jury found for the plaintiff for $250 and interest ; and the
judgment was affirmed at the General Term. The defendants
thereupon appealed to the Court of Appeals, where the judgment
was unanimously affirmed.
Denio, Ch. J., in his opinion, said :
" It is quite usual for notes
and mortgages to be drawn, dated and executed preparatory to a
loan, and providing for the payment of interest from their date,
and afterward made operative by delivery and the advancing the
amount of the principal sum mentioned in them. In such cases
an amount would, prima facie, be secured to the lender greater
than the sum loaned and the legal interest, and the securities would
be liable to the charge of usury but if it could be shown that
;
such was not the intention, but, on the contrary, that it had been
;
268 XfAW OJP USVBT.
.expressly agreed between the parties that interest should be pay-

able only from the time the money was advanced, the defense of
usury would be repelled. It very frequently happens that notes
and prepared for the purpose of being discounted, are made
bills,
for a larger amount than the bank or other party which is expected
to be the lender is willing to advance. H, in such case, it be
agreed that only a part of the amount should be lent, and that the
paper should be Hiegotiated for the security of that amount only
the transaction is not usurious. * * * The note, on its face,
contain? no feature of which usury could be predicated. That

was attempted to be made out by the parol evidence. There is
. nothing respecting interest, whether lawful or excessive, in it.
The defendants made out by parol a prmoa facie case of usury
but this was subject to be met and disproved by the same species
of evidence. * * * I am satisfied the Supreme Court was
right, and that the appeal was without substantial merits, and am
for affirming the judgment appealed from."
Hogeboom, J., in his opinion, said " The judge charged that
:
if the transaction was a loan of $250 for that amount of money
advanced, and the note was not to be held for any larger amount,
and such was the understanding of the parties, the transaction
was lawful, and the plaintiff could recover as upon a loan for that
amount. This charge was excepted to, first, as not being within
the range of the fact and second, as the action was brought upon
;
the note as an entire contract to recover the whole amount, and

not a portion of the note, but not specifically upon the ground
that it was not within the issue of the pleadings. I think the
charge was correct, and was unexceptionable in point of law.
There were also suflaicient facts in the testimony of James Eay to
justify its being submitted to the jury in that aspect of the case.
* * * The judgment should be affirmed " {Sohoop v. Glarke,

1 KeyesR., 181, 184, 185, 188, 189).
The fourteenth case which will be considered was decided by
the Supreme Court of the State of New York in 1865. The
action was upon a promissory note, made by the defendants, for
$300, payable three days after date. The evidence showed that
the plaintiff in the first place, purchased a note of $300 of the
defendants, for $280, which was made by one of the defendants,
and indorsed by the other defendant and another person. That
note was made for the purpose of raising money upon it. When
:
TBANSACTTONS NOT USURIOUS. 269

the note was nearly due, tlie defendants made the note in suit,
and the plaintiff wrote upon it a guaranty of the payment and
collection thereof. This note was delivered to the payee, a third
person, who paid to the defendants the full amount thereof in
mpney, less the interest for the time it had to run, that is, he lent
the defendants the amount of money specified in the note, less the
interest which the note would have drawn if it had been made
payable with interest. The plaintiff paid the amount of that note
to the said payee before it became due, and received it from him.
The defendants paid the money which they borrowed of the
payee named in the note in satisfaction of the first mentioned
note. The defense was usury. The cause was referred to a
referee, and on the trial these facts appeared, and the defendants
insisted that the plaintiff paid the same identical money, which
they paid to him, to the payee, for the note in suit.
The referee found that the note in suit was valid in the hands
of the plaintiff, and reported in favor of the plaintiff for $358.15,
the whole amount thereof. A judgment was entered on the report
of the referee, and the defendants appealed to the G-eneral Term,
where the judgment was affirmed.
Balcom, delivered the opinion of the court, and said " The
J., :
transaction was far from usury as between Ballantine and the

defendant, and the note was clearly valid in the hands of the for-
mer; and if he had kept it, he could have maintained an action
upon it, against the defendant, or he could have maintained an
action upon the guaranty of the payment of it against the plaintiff.
" Granting that this note was made at the request of the plaintiff,
and negotiated at his request to Ballantine, by the defendant, and
that the money the latter obtained on it of Ballantine was paid by
them to the plaintiff, in satisfaction of a note against one of the
•
defendants, that was indorsed by the others, which was void for
usury in the plaintiff's hands, the transaction did not make the
note in suit against the defendants usurious or void, when it came
into the plaintiff's hands. Being valid in its inception, and when
it was first negotiated, it remained valid, and the defendants had
no defense to it "{HcmhsY. Weaver, 46 Bm-l. R., 164, 166, 167).
The fifteenth case to which reference will be made was
decided by the Court of Appeals of the State of New York in 1866.
The action was brought in the Supreme Court, for the foreclosure
of a mortgage, and the facts of the case were, in brief, as follows
270 LAW OF USJTRT.
In 1842, the defendant owned a large amount of real estate in

Wayne county, New York, and was largely indebted to divers
persons, some of whom were secured by mortgage on portions of
the land, but most of the indebtedness was to creditors residing in
the city of New York, who had perfected judgments, and issued
executions to the sheriff of "Wayne. The plaintiff resided in the
State of New Jersey, and. owned a amount of stocks, with

large
which it was supposed he might pay up the indebtedness of the
defendant, although the stocks were, in point of fact, below par;
and 'an arrangement was made between the defendant and plain-
tiff, by which the plaintiff bought up the mortgages, judgments
and other demands against the defendant, a portion of which hie

got at discount, raising the money by a transfer of his stocks, in
some instances, below par. The defendant, to secure the plairttifi
'
for the full amount of such indebtedness, executed the mortgage

in question. There were many other facts in the case, but the
above is the substance of those on which the defense of usury was
predicated. The referee held that the defense of usury failed, and/
reported in favor of the plaintiff, and ordered judgment of fore-
closure his judgment was affirmed at a General Term, and the
;
defendant appealed to the Court of Appeals, where the latter judg-

ment was also affirmed
Porter, J., delivered the opinion of the court, and said " The :
mortgage which the defendant seeks to impeach was for the pay-
ment of an antecedent debt. It was given to secure the precise
sum legally due to the plaintiff. It represented the amount of
certain outstanding claims, which he had purchased with his
own means, and for his own benefit, from the creditors, by whom
they were previously held. His legal rights Avere in no manner
impaired by the circumstance that he did this at the request of the
defendant, and for the purpose of averting a forced sale of his
property.
" It is a misnomer to speak of the transfer of a demand by
one creditor to another as a loan of money to the debtor, within
the intent of the usury laws." After detailing certain efforts
which had been made by the plaintiff to assist the defendant, which,
did not succeed, the learned judge says " On the failure of the
:
proposed arrangement, the plaintiff did not relinquish his purpose

to aid the defendant. * *• * He purchased and took assignments
of the outstanding plaims, making up, by the discount on some of the

purchases, for loss on others, by the transfer of-his stocks, at less than
par. accepted a mortgage for the precise amount due from the
He
*
defendant, payable five years from date, with annual interest. * *
It would be a gross perversion of the statute to sustain a,
defense of usury where no unlawful gain or advantage is either
bargained for or secured by the creditor, and where no loss can be
entailed on the debtor, by fulfilling the terms of his engagement.
The law applicable to the facts is clear; the defense is without
merit, and the judgment should be affirmed, with damages for
delay" {Grcme v. Price, 35 N. Y. B., 494, 498, 499).
The sixteenth case which will be referred to was decided by the
Supreme Court of the State of Pennsylvania, in 1868. The case
involved the validity of a security under the usury la^s, which
included a stipulation to pay certain attorneys' commissions, in case
tlie security had to be prosecuted, and it was held that such a stipu-
lation did not render the security usurious.

Sharswood, J., delivered the opinion of the courtj and said : "It
ought to be considered as fairly settled by the former decisions of
this court, that a creditor, on taking a security from his debtor,
whether mortgage, judgment, bond or note, may lawfully include
a stipulation that in the event of his being compelled to resort to
legal proceedings to collect his debt, he shall be entitled to" recover
also with it the reasonable expenses to which he may be subjected,
or a reasonable sum or commission on the amount to cover such
expenses. In Hulmg v. Dremel (4 Watts, 126), the mortgage pro-
vided that in case of default the mortgagee might sue forth a writ
of scire facias to recover the principal and
interest, and all costs, '
charges and expenses of every kind which he might be put.

' to
It was held not to be usurious, nor was it an unlawful stipulation.
* * * In Fhtzsimmons v. Bcmm (8 Wright, 32), there was
included in the amount to be recovered, all fees and expenses '
of such proceedings, including an attorney's commission of five

per centum,' and so was the judgment which was afterward
affirmed without any exceptions having been made as to that mat-
ter. In Robinson v. Loomis (1 P. F. Smith, 1), which was also
a mortgage, the clause was simply with five per cent attorney col-
'
lection fees,' and this court, in affirming the judgment, merely

say :The five per cent stipulated to be recoverable as fees to the
'
attorney for collection can in no sense be regarded as a penalty.

It was an agreed compensation for expenses incurred by the mort-
272 LAW OF VSTTtlT.
gagees in consequence of the default of the mortgagor/ I have

recited these cases at large to show that this court has set the seal
of its approbation on such agreements " {MoAlUster's Ajpped, 59
Perm,. E., 204, 306, 207).
The seventeenth case to which reference will he made under
thishead was decided by the Supreme Court of the State of New
York in 1869. The action was brought to recover a sum unpaid
on an agreement, and the defense of usury was interposed. The
cause was tried before a referee, and on the trial it appeared that
the defendant toot a mortgage from the plaintiff, and gave back
the agreement in suit, by which the defendant agreed to pay the
mortgagor the amount reserved, with interest, and also to dis-

charge the interest on the mortgage, The bond and mortgage
were then transferred by the mortgagor to the superintendent of
the banking department, as security for circulating notes issued to
the former, equal in amount to the sum secured, and it had 'been
given for the purpose of such transfer.

The referee decided that the contract was not tainted with
usury on the facts stated, and reported in favor of the plain tiff.
Judgment was perfected on the report of the referee, and the
defendant appealed from the judgment to the General Term,
where the judgment was affirmed.
E. Darwin Smith, P. J., delivered the opinion of the court, and
said; "Whatever is the form of a particular transaction, there
must be in substanee and effect a loan of money to bring the case
within the terms and intent of the statute. In this case there was
no loan of money. It clearly was not the object or purpose of the
agreement between the parties to effect or cover up a loan of
money. The transaction may, perhaps, be regarded as an exchange
of securities. The plaintiff executed and delivered his bond and
mortgage for the defendant's agreement to pay him $920 and inte-
rest, and pay the interest on his bond and mortgage. An exchange
of securities, even though one party makes a profit by the trans-
action, is not usurious unless connected with a loan of money, and
designed to cover such loan {DvMham v. Dey, 13 Johns., 40;
Swydcmi v. WestfaM, 4 Hill, 211 Ketchmn v. Barber, 4 ib. 225).
; ,
But I think the transaction may more properly be regarded as an

arrangement for the execution and delivery of the said bond and
mortgage for the consideration of $950, the amount of its face, to
be paid in the currency to be received from the banking depart-
TRANSACTIONS NOT USUBIOVS. 273
ment upon the same. The bond and mortgage were made to be,
and were, immediately transferred to the superintendent of the
banking de'partment in exchange for circulating noteg. This would
make the mortgage a valid mortgage immediately as between the
parties. * * * At least there was no loan of money between
the parties, and none intended, and we cannot say, as a matter of
law, that the transaction was designed to cover a usurious transae
tion, and was in law in violation of the statute " {Perrme v. Sotoh-
Tciss, 2 Lans. B., 416, 418, 419).
The eighteenth case to which reference will be made was
decided by the Supreme Court of the State of New York in Sep-
tember, 1871.
The plaintiff's testator loaned his individual funds to the defend-
ant's testator on bond and mortgage, with knowledge that the
money was borrowed to pay the borrower's notes due to a bank of
which the lender was president and financial officer, but without
any agreement in that respect, and the money was actually used
f&r that purpose. In an action to enforce the bond and mortgage,
by a foreclosure and sale of the mortgaged premises, and the reco-
very of any deficiency which naight remain on the bond, the
defendant alleged that the bond and mortgage were, by reason of
the fadts stated, void for usury. The case was tried by a referee,
who reported in favor of the plaintiffs, and the defendant appealed
to the General Term of the Supreme Court, where the judgment
of the referee was affimied. The court held that the defendant
could not defend the action on the ground of the alleged usurious
consideration taken by the bank on negotiating the notes and it ;
was declared that there was no rule of law which makes it unlaw-
ful or usurious to loan a borrower money to pay the usurious debt
of such borrower to another. Johnson, J., delivered the opinion

of the court, and,, among other things, said ;
" Where a new secu-
rity is given to the same lender, to secure a usurious debt formerly
contracted, it will partake of the taint of the original debt, even
though given by a third person, if there is no other consideration
than the original usurious indebtedness ( Yickery v. Dickson, 35
ârb., 96 ; Bell v. 8cott\ 24 Wend., 230). Here, however, the
mortgage is given by the borrower of the bank to a third party,
and upon receiving from such party the full face of the bond and
mortgage in money belonging to him. There is no element of
usury in siiph a transaction, * * 1^ There was ro legal, privity
35
274 LAW OF U8URT.
between Eich and the bank, in the transaction in question, so far as

the evidence goes " ( Wilson v. Ha/rvey, 4 Lcmsing'a E., 507, 509,
510).
"And the nineteenth and last case which will be referred to, on
was decided by the Court of Appeals of the State of New
this head,
Y k, also in September, 1871, being a very late case in that court,
and but recently reported. The doctrine qf the case is expressed
in the head-notes of the report, viz. That where an advance is
:
made in one place, upon a check drawn upon a bank in another,

no question of usury can arise out of the transaction, because there
is no loan or forbearance of money for any time whatever. The
court declared that, had there been a loan for any time, they would
have had no difficulty in seeing usury under the facts of the case,
unless the statute on that subject be regarded as repealed, of which
there is no pretense {Crocker v. Colwell, 46 iV. Y. E., 212, 217).
Other cases might be referred to, from the reports of the differ-
ent States, involving the question of usury, wherein the trans-
actions have been upheld by the courts but, perhaps, they would
;
illustrate no new principle, nor shed any new light in addition to

that contained in the cases already examined. It will be observed
that most of the cases referred to in this chapter arose in the State
of Wew York ; and, as the statutes against usury in this State are
more stringent than the laws of most of the remaining States,
those authorities may be regarded as sufficiently exacting for any
of the States where usury laws may exist.
CHAPTEE XX.
TEANSAOnONS HELD TO BE USUEIOtrS OASES OP ALLEGED MISTAKES -7-
CASES OE PTJEOHASE OF NEGOTIABLE PAPER MISTAKE C0N8TEU0- m
TION OF STATUTE.
Having considered the leading cases involving the question of

usury, in which the transactions were judicially declared to be
exempt from the taint of usury, it remains next to refer to some
leading authorities wherein the contract was held to be within the
statute against usury, which may serve as precedents from which
to determine the question in any given case.
It has been asserted aijd demonstrated in the preceding chapter^
"
TRANSACTIONS HELD USURIOUS. 275

that a contract made usurious by mistake of the parties will not be
invalidated thereby, because in such case there is lacking the
important element of a corrupt intent ; but it is not all cases of
mistake in reserving illegal interest th.at will have this effect, for
if the agreement be clearly usurious it is subject to the statutory

taint, though the parties did not intend it, and were ignorant that
such would be the effect. The criminal intent is always a matter
of legal inference where once the fact is found. This doctrine is
illustrated by an early case before the Supreme Judicial Court of

Massachusetts. The notes of a bank at sixty-three days would be
payable at the end of the ninth week but the
; officers of the bank
were in the habit of receiving renewed notes the week before,
charging interest for nine weeks, thus allowing in fact only eight
weeks. It appeared that this was merely for the convenience of
calculation, and the bank had no intention to violate the law ; but
the court declared the practice usurious.
Sewall, J., who delivered the opinion of the court, concludes in
this manner :
" It probable that in this case there was no inten-
is
tional deviation on the part of the bank, but a mistake of their

right. This, however, is a consideration which must not influence
our decision. The mistake was not involuntary, as a miscalcula-
tion might be considered, where an intention of conforming to the
legal rule of interest was proved, but a voluntary departure from
the rate. An excess of interest was intentionally taken, upon a
mistaken supposition that banks were privileged in this respect to
a certain extent. This was, therefore, in the sense of the law, a
corrupt agreement, for ignorance of the law will not excuse
{Maine Bank v. Butts, 9 Mass. E., 49).
The doctrine of the case of the Mains Bcmk v. Butts seems to
be, in a few words, that if a greater rate than legal interest be
reserved or taken by a party to a contract, upon a mistaken sup-
position of a legal right to do so, it is, nevertheless, a corrupt
agreement within the statute. The case conforms to the English
and is in accordance with well recognized rules of law.
doctrine,
The same question, in its present aspect, came early before the
old Supreme Court of the State of ISTew York, and a similar
decision was made as in that of the Massachusetts case. The
action was brought to recover the amount of a promissory note,
discounted by an incorporated company supposed to be possessed
of banking powers, a,nd given to take up another note, the amount
276 LAW OF USUBT.
of which was ascertained and determined upon the theory that

ninety days were the fourth of a year and three days the tenth of
a month, the conceded effect of which was to give the lender inte-
rest of 365 days upon a forbearance for 360 days. The defense,
among was usury. Upon the direction of the judge at the
others,
circuit, the jury found a verdict for the plaintiff for the amount of
the note, subject to the opinion of the Supreme Court on a case to

be made, with leave to either party to turn it into a special verdict
or bill of exceptions. The case was fully and ably argued in the
Suprenie Court, and judgment was ordered for the defendant, the
court holding that the transaction was within the statute and
usurious.
Sutherland, J., in his opinion, said: ""Was the note usurious
in conseqûence of the interest having been calculated upon the
supposition that ninety days were the fourth of a year, and thyee
days the tenth of a month? * * * It is admitted, by all writers
and in all the cases upon this subject, that the intention of the
contracting parties is the principal subject of inquiry in determin-
ing whether a contract be usurious or not, for if the intent
of the contracting parties be righteous the contract cannot he

within the statute of usury. * * * 'Yhe payment and
receipt of usurious interest prinna fade, evidence of a
is,
corrupt agreement (1 Sawnd., 295, 296, in note). It must be con-

ceded that more than seven per cent per a/rmvm, was received
upon the discount of the note in this case. How is this presump-
tion of law, that it was received in pursuance of a corrupt agree-
ment, sought to be repelled ? Not by showing that the sum paid
.for interest was greater than the parties intended should be paid,
that there was a mistake in telling the money, or that the clerk
who counted the interest had fallen into an arithmetical error,
but by showing that the excess arose from the adoption of a prin-
ciple of calculation which the parties knew would give more than
seven per cent, though they believed it was not a violation of the
statute. In other words, the plaintiffs received more than seven
per cent, because they believed that they" had a legal right to
receive more. If they adjudged erroneously; it was a mistake in
point of law and not in point of fact and unless there be some-
; •
thing in the case of usury to distinguish it from all other cases,

the ignorance or mistake, in relation to the law, can afford them
po protection, * * * That the principle of cp^lcnlation adopted
by the was the one in general or universal use among

plaintiffs
banks, cannot alter the sense of the case. statute cannot be A

obviated by the custom or usage of a particular trade. *
* *
Where the law is clear, no usage can control it. * * * The
custom or usage of banks or individuals cannot shorten a year to
360 days. But a different mode on notes
of calculating interest
payable at sixty or ninety days and notes payable in two or three
months, is established and practiced ( Vide tables m, Ohitty on
Bills, last ei., 608, 609).
" I cannot, therefore, resist the conclusion that the note in this
case was usurious in consequence of interest having been calcu-
lated and taken upon the principle that ninety days were the fourth
of a year" {New York Firemen Insurance Compamy y. Ely, 2
Cow. B., 678, 704r, 705, 707, 708).
The doctrine of this case is, that casting interest upon the prin-
ciple that thirty days are the twelfth of a year, sixty days the
.sixth of a year, ninety days the f oiu-th of a year and the three
days of grace the tenth of a month, and discounting a note upon
iSuch a calculation, is usurious, and the note, consequently, void.
A case was decided, by the late assistant vice-chancellor of the
first circuit of the State of New York in which the same doctrine was
enunciated, and a transaction declared to be usurious where a party
had taken, in addition to legal interest, a certain per cent under
ithename of exchange, under the mistaken impression that such
sum was legal, when, in fact, the case was not one in which a
charge for exchange could be properly made. bill was filed to A
compel the defendant to deliver up to be canceled sundry promis-
sory notes, alleged to be usurious, and to surrender the collateral
security thereto. The notes were given for a loan of money in
the city of New York under a contract by which the borrowers
agreed to pay the lender for the use of his money seven per cent
interest — five per cent more under the denomination of "the
exchange from Savannah," and two and a half per cent upon all
sales ofwatch movements made by them. The lender was a resi-

dent of Savannah, in the State of Georgia, from where he had
brought his money, but the loan was made in New York. The
court held that the transaction was usurious and granted the relief
prayed for.
Sandford, A. Y. C, in his opinion, said :
" The case itself is one
of immitigated usury. The loan was made in this city in 1840,
278 LAW OF USURY.
and borrowers agreed to pay Mr. Mchols for the use of the
tlie
mcmey seven per —

cent interest ^five per cent more under the
denomination of the exchange from Savannah,' and two and a
'
half per cent upon movements made by them.

all sales of watch
"
The money loaned was here. True, it had been remitted to
this city from Savannah, in Georgia, some time before, and upon
this fact the defense is founded. It is said that the charge of
fiveper cent was for 'fixmg out the fimd' by transporting it
from Georgia in order' to make the loan, exchange on New York
at Savannah, being at the rate of nine per cent premium, and that
the legality of the charge by the decision of the chan-
is sustained
cellor and the Supreme Court in Swydam
v. Booth (10 Paige, 94),
and Suydam v. West/all (4 Hill, 211, 219). * * * But there

is no foundation for the charge of any exchange. Not only was
the money already here, but it had been sent here without the
slightest reference! to this loan. The circumstance that it had
come here from Savannah made it worth no more to the borrower.
Even if it had cost the defendant twenty per cent to bring it here,
it would buy for him no more property after it arrived, nor did
our statute permit him, for that cause, to loan it at a greater profit
than seven per cent.
" As well might a merchant who had brought Mexican dollars
from the interior of Mexico, at an expense of ten per cent paid for
insurance, freight and protection from robbers, insist, on loaning
therii here, that the borrower should pay him those expenses
in addition to the interest. * * * It is true that there
must be an intent to reserve or taUo more than seven per cent.
In this instance the lender secured twelve per cent for the
use of his money, and he intended to obtain it. The statute
declares that to be usury, however ignorant he may have been of

its provisions, or deceived by the use of the word exchange.
•* * * The complainants are entitled to the relief prayed for
in their bill " {Jacks v. Nichols, 3 8amd. Gh. R., 313, 3lV, 320).
The doctrine of this case, upon the point under consideration, is
that there is an intent to take unlawful interest, within the mean-

ing of the New York statute against usury, when more than seven
per cent is reserved, although the lender took the surplus under a
mistaken idea that he had a right to charge the borrower for
expenses or trouble.
The case of Jacles 'i. Nichols was taken to the Supreme Court
'
TRANSACTIONS MELD USUSIOUS. 279
ttf the State by the defendant by an appeal, and the decree of

the assistant vice-chancellor was reversedand the plaintiff 's bill
dismissed.
Hurlbert, P. J., in giving the opinion of the court, said:
" "We think there can be no reasonable doubt that the contract for
a loan between the parties was tainted with usury, if not in its
inception, certainly upon the" renewal of the securities given by
the Messrs. Jacks and the only ground of defense set up against
;
the plaintiff 's bUl, which we esteem capable of being urged by

the defendant, is based upon the allegation that the subsisting con-
tract between the parties was made in the State of Connecticut,
and that effect would be given to it according to the laws of that

State, which, for the purposes of this case, are silent on the subject
of usury. * * * This contract, in the absence of any proof
to the contrary, is to be intended as legal and binding upon the
parties. Having been made in the State of Connecticut, and
therefore to be construed by the laws of that State, it is for the
plaintiffs to show that by those laws the contract is void, before
they can be entitled to the relief prayed for in their bill " {Jacks
V. Nichols, 5 Barb. B., 38, 39, 43).
It will be perceived that the Supreme Court did not difi'er with
was one
the assistant vice-chancellor in his conclusion that the case
01 "unmitigated usury;" but' the decree was reversed upon the
ground that the contract was made in the State of Connecticut,
and that it was not shown to be usurious under the laws of that
State. But the complainants appealed from the judgment of the
Supreme Court to the Court of Appeals, where the last mentioned
judgment was reversed and that of the assistant vice-chancellor
was affirmed.
Gray, J., delivered the opinion of the court, and concluded
thus " The fact that the note was dated in New York is alone
:
presumptive evidence that the maker not only resided at the place
of its date, but contemplated payment there (3 KenHs Com., 96).
And for the purpose of charging the indorsers upon the notes, the
makers must have been sought at their residence or place of busi-
ness in this State. In doing that, reference must have been had
to the days of grace given by the laws of this State (2 Kenfa
Com., 459 3 id., 96 BamJe of Orange v. Colby, 12 N&w M. B.,
; ;
520). It is therefore manifest that the continuance of the loan,

made here upoin sulwtituted securities, practically agreed upon
280 LAVI OF USURT,
in this State, and consummated in Connecticut, was all done with

reference to the laws of this State, and that it was but the con-
tinuance of the original usurious loan, aggravated by each renewal
and void by our laws " {Jacks v. Niehols, 5 N. Y. R., 178, 186).
And a similar doctrine was laid down by the Court of Appeals
of the State of New York in an important case decided in 1865.
The action was brought to recover the amount of two drafts,
indorsed by the defendant and discounted by the plaintiff, at that
time one of the safety fund banks, and subject to the provisions
of the act of 1829. The drafts were discounted at the rate of
seven per cent per annum, and interest at and after that rate was
taken by the teller of the bank at the time. The net proceeds of
the drafts were paid to the drawers, and the discount retained by
the plaintiff at the time of the discount.
The defense interposed was that the drafts were usurious because
they were discounted after the rate of seven per cent, when by
the statute of 1829 safety fund banks were not authorized to take
more than six per cent interest in advance on paper discounted in
the ordinary course of business, which became payable within
sixty-three days of the time at which it was discounted. It
appeared that these drafts were made payable in' eighteen and
thirty-five days after their respective dates.
The only question litigated on the trial in the court below was
in respect to the validity of the contract under which the plaintiff
claimed to recover. The defendant had judgment in his favor at
the circuit, which was afterward aflSrmed at the General Term of
the Supreme Court for the fifth district, and the plaintiff there
upon appealed to the Court of Appeals, where the judgment of
the General Term was afiSrmed.
Brown, J., in his opinion, said " It is thought by the counsel
:
for the plaintiff that the charge of seven per cent by the bank
originated in a mistake of the teller in estimating the amount of
the discount, and, therefore, the transaction is not to be treated as
a breach of the statute. The proof shows that the cashier of the
bank passed the paper to the teller, Thonias J. Leach, with direc-
tions to discount it, without further instructions; and that he
estimated the amount at the rate of seven per cent, and retained
that amount from lihe proceeds, giving the balance to Perry, who
said nothing to him about it. He supposed his figures and esti-
mate were right, and did not know of the provision of the statute
TBANSACTI0N8 MELD USUBIOUS. 281
at the time. He made no error or mistake in what he did. He

accomplished Just what he intended, which was, to take the dis-
count at the rate of seven per cent. A mere
error of figures, an
innocent mistake of fact in estimating the amount of figures,
would not constitute usury because there must be an intention, a
;
corrupt agreement, to take more than the law allows, to make out
what is understood by nsury. The rcorrupt agreement spoken of
in the books is an agreement to do what the statute forbids. * * *
The intention to take the forbidden rate of intel-est, as well as the
taking of it, is established beyond a doubt."
"Wright, J., in his opinion, said :
" If the taking of the seven
per cent was a mistake, or unintentionally done, it would not afiect
the validity of the transaction. But this is not pretended. The

plaintiffs intended to take seven per cent interest on the discount
of the drafts ; and had thisbeen a usury case, intentionally taking
more than legal interest would have been, per se, usury. There
must be a corrupt agreement, it is true, to violate the statute against
usury ; but when more than legal interest for the forbearance of
money is intentionally taken, whether the party acts in ignorance
of the law or not, it is conclusive evidence of a corrupt agreement
within the statute" (Bank of SaUna v. Almord, 31 N. Y. R.,
473, 475, 479). ^
The doctrine of the case, so far as the question of usury is con-

cerned, is laid down in the concluding paragraph of the opinion of
Judge Wright, which is also in harmony with the opinion of Judge
Brown, that, " when more than legal interest for the forbearance
of money is intentionally taken, whether the party acts in igno-
rance of the law or not, it is evidence of a corrupt agreement,
within the statute," and the contract is void.
The fact of ignorance is not available, under the statutes of New
York, in another class of cases, one only of which is it necessary
to consider. The doctrine is well laid down in a comparatively
late case, decided by the present Supreme Court of the State.
The was brought to recover the balance due upon a pro-
action
missory note made by the defendant.
The only defense which the
evidence tended to prove was the defense of usury. The facts
established on the trial were, that on the 14th of March, 1855, one
John Earnest, the father of the defendant, John J. Earnest, exe-
cuted his bond and mortgage to his son, George W. Earnest, for
the sum of $650, bearing interest from the 1st day of April, 1855,
36
282 LAW OF USVBT.
for the purpose of raising that sum of money. Failing to raise

the money upon bond and mortgage, he applied to his son
the
John J. Earnest, one of the defendants, to give him his note and
take the bond and mortgage, to which he assented ; and about the
Ist t)f June, 1855, in pursuance of the agreement, the defendants
made their promissory note for $650, and dated it back to the time
the mortgage began to draw interest, payable to John Earnest, the
father of one of the defendants, or bearer, and delivered it to the
payee, who same time delivered the bond and mortgage to
at the
the defendant, John J.' Earnest, with the promise to have it assigned
to him when the grantee in the mortgage came out from Allegany
county, where he resided, which was done about the 1st of July
following. On the 8th or 9th of June, 1855, John Earnest sold
the note to one Kingsley for $605, at the same time representing
it to be given for a valid consideration. The defendant, John
, J. Earnest, afterward sold and assigned the bond and mortgage to
Henry C. Van Duzer, representing the same to be " his own," and
that it was " all right in every way." On these facts the defend-
ants recovered a verdict, and the plaintiff moved for a new trial at
a Special Term before the same justice, which motion was denied, ,
and the plaintiff then appealed to the General Term, where the
order of the Special Term (Rnying a new trial was affirmed.
E. Darwin Smith, J., delivered the opinion of the court, and
said " A promissory note, to be the subject of a sale, must be an
:
existing, valid note in the hands of the payee, and given for some
actual consideration, so that it can be enforced between the origi-
nal parties. The doctrine is too well settled to be questioned, that
such a note, not valid in the hands of the payee, cannot by him be
rendered valid by a sale thereof to a hona fide purchaser at a rate
of interest exceeding seven per cent. To be the subject of such
sale, it must have a pre-existing validity. Its breath of life cannot
be imparted through a usurious transaction. * * * The fact
that indemnity was given to the accommodation maker did not
render the note any the less usurious. The charge was clearly
right on this point. The argument that there can be no usury
where there is no corrupt agreement, and that there can be
no corrupt agreement to take usury when the party discounting
bhe paper is ignorant that it was merely made for the purpose of rais-
ing money thereon, and is, in fact, informed at the time that
it is valid business paper, is not sound, if the legal effect of the
TBANSACriONS HELD UBUBIOUS. 283
transaction involves a usurious agreement, for the law will not

allow men to assert their ignorance of the laws or disclaim an
intention to do what their express contracts imply. Odious as the
taking of usury has ever been, in the scale of crime the offense is
mere malum ;prohibitMm, not ma1/u,m in se. In many cases of

decided usury^ there was not even an intent to evade the statute.
In many cases the contracting parties did not suppose, at the time,
that they were violating any law, and such, I doubt not, was this case.
* * * Kingsley vras concerned, there was clearly no
So far as
intention to evade the statute, or to take usury. * * * He
supposed he was pul-chasing business paper, as he lawfully might
do, at a discount exceeding seven per cent. He knew, however,
that he was stipulating to get more than seven per cent for the
use of his money. * * * This doctrine in regard to the usuri-
ous character of a promissory note, nominally sold upon a false
representation that was business paper and given for value, had
it
its origin before usury was made, as it is by our statute of 1837, a
criminal offense, and is hardly reconcilable with the principles

which would govern the questions upon the trial of an indictment
for usury. * » * * Independently of adjudged cases, I
should think in the sale of an accommodation note, like this, that
there was nt) usury in the transaction, and that it presented simply
a case of fra/tid, where the money was obtained by fraud and false
pretenses. * * * The objection of the defendants' counsel

that the makers of the note in controversy in this action are estop-
ped from setting up the defense of usury, I think cannot be main-
tained. I think it would be entirely just. * * * But no
adjudged case has extended the doctrine so far as to preclude the
defendants in this action from making the defense of usury here
interposed " {Hall v. Earnest, 36 Barb. B., 586, 588-591).
The doctrine of this case accommodation note, having
is, that an
in fact, as against the maker, and never having had
no validity,
any legal inception, is incapable of sale and one who buys it of
;
the payee takes the precise place of the payee in respect to the
defense of usury, although he purchased the paper in ignorance of
its true character and upon the false representation that it was
business paper, and given for value, and hence when such a note is
sold to a bona fide purchaser at a rate of interest exceeding seven
per cent the transaction is usurious, and the note cannot be enforced.
The courts of North Carolina have decided that a mistake in the
284 IjAW of usury.
construction of the statute of usury, if it results in taking more

than legal interest, will render the contract void, although it was
admitted that such would not be 'the effect where the error was
one of fact. Euffin, J., delivered the opinion of the court, and
said :
" The discounting of a bill or bond, and taking the general
indorsement of the holder, does not ex vi termmi constitute a
loan, and if the rate of discount exceed that fixed by the statute, it
is a usurious loan. It is said, non constat, that these parties knew

that the indorsejcs were secured thereby, without which there was
no corruption. It is to be taken they knew it, and that the
indorsement expresses their contract, until the contrary, as a mis-
take in the writing, or the like, be shown. If a person miscon-
strues the statute or law, he must abide by his error. If he mis-
takes the fact, as the amount reserved, he may show it" {ColM&r
V. IfeioiU, 3 D&o. E., 30).
CHAPTEE XXI.
TEAHSACTIONS HELD TO BE USTTEIOITS WHEBE THERE WAS AN

ALLEGED HAZARD ATTENDING THE PRINCIPAL CASES OF SEA RISK —
CASES BETWEEN COPARTNERS CONTRACTS IN THE FORM OF A
POST OBIT CONTRACTS IN THE FORM OP AN ANNUITT OTHER —
ALLEGED RISKS.
It has been heretofore shown that the circumstance of a hazard

attending the principal wiU exempt the transaction from the opera-
tion of the statute against usury, and cases have been referred to
illustrating the doctrine. But it is not every slight contingency,,

where the substance of the contract is that of borrowing and lend-
ing, which will take the case out of the statute and it has ; often
happened that parties who have sought to get more than legal
interest for the use of theirmoney, under cover of this principle

have failed, and the transaction has been held to be usurious.
An early case in the English courts illustrates the point. One
Henry Wilson borrowed £2,000 of one Morse, and on' being pos-
sessed of two shares, calculated to be of the value of £1,000 each
share, in a brew-house, the business of which was then carried on
by him and two partners, which two shares were expected to pro-
duce a larger surplus of profits to him than would be. sufficient to
TRANSACTIONS HELD USVBI0V8. 285
satisfy the interest of £2,000 after the rate of legal interest, had
agreed with Morse, that in consideration of his forbearing the
£2,000 till the 11th of June, 1789, he would pay him, Morse, not
only the interest, but also such surplus profits as should arise from
two shares of the brew-house during the time of forbearance, and
the shares should be assigned over to him so as to be his own
piroperty ; the Court of King's Bench held the transaction to be
tsurious.
Lord Kenyon, C. J., observed :
" The simple question is,
whether this is not an agreement to receive more than five pounds

per cent allowed by law for the forbearance of a loan ? Most
unquestionably it is. It has been argued, however, that this was
not a usurious contract, because the principal was put in hazard,
as it was liable to the partnership creditorsit was no further
; but
hazarded than in the case of every other loan, namely, by the risk
of the borrower's insolvency for as between the plaintiff and the
;
partners in the business^ he was not liable to contribute to the

losses in the trade."
Buller, J., said :
" In this agreement provision is made to receive
the profits, but none to engage for the losses of the trade. And
therefore it is not true that the plaintiff's principal was at stake,
since by the terms of the contract the trade is to be carried on by
the other partners, and the plaintiff is only liable to make good
the losses of the trade in the event of the insolvency of the other
partners. But as between these parties, if there be any losses,
they must be'borne by the defendant and the other partners, and
if there be any profit, the plaintiff is to receive his proportion of
it " {Morse v. Wilson, 4 Term B., 353).
Another early English case may be referred to on the point.
One Eenolds brought an action of debt against one Clayton for
£60 upon a bond, the condition of which was, that if the defend-
ant should pay £33 to the plaintiff on the 1st of June, if Chris-
topher^ the son of the plaintiff, was then aUve, or, if he died before
that day, £26, then the obligation should be void. The defendant
setup the defense of usury, for that it was agreed, as above stated,
upon a loan of £30 by the "plaintiff to the defendant. The court
held the case to be one of usury under the statutes, for it was the
intention of the makers of the. statutes that such subtleties should
not be practiced. And it was said that here the condition might as
well have been, if twenty persons, or any of them, be alive at one
;
286 LAW OF TTSXTBT.
day, as to have been as it was ; and in this opinion both Popham,

0. J., and Periam, 0. B., concurred (Renolds v. Ulwyt07i, 5 Goh^g
R., 70, 1 ; 8. C, 2 And., 15, pi. 8; and vide Button v. Down-
holm, Ore. EUz., 643).
And still another very early English case may be cited. The
case was this The obligor was bound in a bond of £300 to pay
:
£22 10s. premium at the end of the first three months after the
date of the instrument, and sixpence in the pound at the end of
six months as a further premium, together with the principal itself,
in case the obligor should then be living, but, in case he died
within that time, then the principal was to be lost. This was
adjudged to be a case of usury. Holt, 0. J., said " This is not a :
bottomry bond, by reason of the danger of the sea ; for they who
lend on bottomry bonds are as merchant adventurers." Aad at
another day, Thompson was urging the hazard that the plaintiEE
ran in the case, when the chief justice observed, " I am of your
opinion. Brother Thompson ; for you run a great hazard, not of
the casualty of death, but of the loss of your money ; for it is
manifestly usurious, for dying within half a year is no hazard

and if it should not be so, the statute would be easily evaded, and
signify nothing" {Mason v. Abdy, 3 Salk. E., 390).
Several American cases niay be cited, in which the same distinc-
tion is recognized as in the English authorities. A leading case is
one recently decided by the Court of Appeals of the State of New

York, where the transaction was attempted to be sustained on the
ground that it was, in substance, a bottomry bond, and, therefore,
taken out of the statute. The action involved the validity of an
agreement which was substantially this Hoppock, the defendant, :
was to advance $1,500 on the brig Sophia, loading in New Tork,

and bound for San Francisco and the plaintiff, Braynard, agreed
;
to pay him, for the use of the money, twelve per cent commission
and interest at seven per cent per annum from date (May 16, 1850),
until the said amount was paid to said Hoppock in New Tork.
Braynard further agreed to transfer to Hoppock the policy of insur-
ance on the brig, for $8,000, also the policy of insurance on the
freight, and the bills of lading of cargo, together with a bill of
sale of the vessel. The brig was to be consigned to Mr. Eidle-
man, in San Francisco, who was to collect her freight, charging the
customary commissions at that place for doing the business. He
was to remit to Hoppock, from the proceeds of the vessel's account,
TBANSACTIOm HELD USURIOUS. 287
the amount loaned and twelve per cent commission, and. interest
added until the funds could be placed in Hoppock's hands in New
York, holding the balance subject to the order of Braynard. On
receipt of the funds in New York, Hoppock was to return to
Braynard the policy of insurance on, the vessel and bill of sale.
In case of the loss of the vessel, the insurance upon her was to be
collected by Hoppock, and after paying himself the principal
loaned and interest, and twelve per cent commission, as agreed,
the balance was to be paid to Braynard. In pursuance of this
agreement, the loan of May, 1850, was made, and subsequently a
further loan of $366, and Braynard assigned to Hoppock two poli-
cies of insurance on the vessel for $2,000 each, and a policy on the
freight for $4,000, and also executed and delivered to him a bill
of sale of the brig. Hoppock collected from the insurance com-
panies about $1,000 on account of policies on the vessel, and $133
on freight policy, and Braynard brought his action to recover from
Hoppock these sums of money, on the ground that the original
transaction was usurious. The Superior Court of the city of New
York held that the agreement was usurious, and gave judgment in
favor of the plaintiff for the amount claimed. The defendant
thereupon appealed to the Court of Appeals, where the judgment
was affirmed.
"Wright, J., who delivered the prevailing opinion, said :
" The
transaction, then, was a loan of money, with a charge of a premium
for a loan largely in excess of legal interest. It was clearly usu-
rious, unless of such a nature as to take it out of the statute.
This is conceded ; but it is claimed that the contract under which
the loan was made was, in substance, a bottomry bond upon the
brig Sophia. In this I cannot concur. * * * Bottomry is a
contract by which the owner of a ship hypothecates or binds the
ship as security for the repayment of money advanced for the use
of the ship. It is defined by Marshall to be a contract in the
nature of a mortgage of a ship, on which the owner borrows
money to enable him to fit out the ship, or to purchase a cargo for
a voyage proposed, and he pledges the keel or bottom of the ship,
pars pro tcmto, as a security for the repayment and it is stipu-
;
lated, if the ship should be lost in the course of the voyage, by

any of the enumerated in the contract, the lender also shall
perils
lose his money but if the ship should arrive in safety, then he
;
shall receive back his principal, and also the interest agreed upon,
288 LA.W OF USUST.
generally called marme interest (2 Marshall on Inswrance, T33).

An essential character of bottomry is, that the money lent is at the
risk of the lender during the voyage, and that the repayment
thereof depends on the event of the successful termination of the
voyage. It is the very essence of the contract that the lender runs
the risk of the voyage, and that both principal and interest be at
hazard. * * * no bottomry when the money is payable
It is
at all events ; for the principal and extraordinary interest reserved
is not put absolutely at hazard by the perils of the voyage. The
lender must run the maritime risk to earn the maritime interest.
* * * Now look at this case in the light of those peculiar
bottomry transaction. It seems to me there is
characteristics of a
no ground agreement a contract in the nature
for considering the
of bottomry, or the loan one on bottomry. * * * The lender
took no risk whatever, and intended to take none" {Brayna/rdiY.
M&pfoch, 32 iT. T. E., 571-574).
An early case in the State of Pennsylvania may be referred to
as illustrative of this principle of hazard in transactions between
copartners. The action was brought in the Court of Common
Pleas of the county of Alleghany, by Evans against Ifegley, to
recover upon an agreement between the parties under the follow-

ing circumstances : The plaintiff and defendant were partners in
the erection and business of a steam-mill, on terms of dividing the

profits and bearing equal parts of the eixpense. Shortly after the
mill was in operation, they agreed that ISTegley should take all the
profits, pay the debts (except a debt due by the firm to Evans
himself), and pay Evans $8,500 fop his interest in the property,
when it should he convenient, and in the meantime pay him a
" yearly rent," as the parties expressed it, of $640, being a sum
greater than the lawful interest for the putchase-money. It was

further stipulated that any part of the purchase-money which
might be paid should abate the rent pro tanto / and that Negley
was to release all demands which he had against Evans, and that
Evans should convey the steam-mill immediately. The contract
was reduced to writing. The defense was usury also perform- ;
ance. The judge who tried the cause directed the jury that the
transaction was usurious, and the plaintiff excepted, A verdict,
however, was rendered in favor of the plaintiff^, but for a sum less
than he demanded, and the case was taken to the- Supreme Court
on bills of exception, where the judgment was affirmed.
tRANSACTIONS HELD USUBIOVS. 289
Gibson, J., delivered the opinion of the court, and said :

" The
only diffictdty in the case arisesfrom the parties having called the
sum annually to be paid by Negley a rent. Strike out that word
and the contract will present as clear a case of usury as any that can
be imagined. But could a rent in fact be reserved? A rent for
what J Ifot for the steam-mill, for that -is to be conveyed to
Negley in fee. It could not be a rent-charge, purchased with the
$8,500, for there was nothing definite or permanent in the estate or
interest that might be saipposed to be given in return for it, as
Negley could at any time repay the $8,500 and disciharge himself
from the payment of the annual sum. And besides, it is incon-
sistent with the notice of a rent-charge, that after the estate of the
grantee ,is spent, the consideration which he gave for it should be
returned to him. * * * '^q one who reads the agreement
can hesitate to pronounce, that by the name of a rent, they in fact
meant to stipulate for a compensation for the use of the purchase-
money, which was to be retained. * * * And if this be the
true construction of the contract, there is an end of the question"
{Evans v. Medley, 13 Serg. & RawUs E., 218, 222, 223).
In this case it would seem that the fact that the transaction was
between pairtners 'did not aflPect the question in the least, because,
was held to be a loan of money at interest,
after all, the transaction
or at least that was equivalent to a loan, with an agreement to
it
pay exorbitant interest for the use of money.

The Supreme Court of the State of Wisconsin, where a partner,
upon the dissolution of a firm, agreed to leave with the remaining
active partners a certain sum, he to receive a certain amount every
six months, whether there were profits or not, for the use of the
money, for which notes were given, with the right, in case the
firm shoiild becom« embarrassed, to coUect the principal at once,
held that the transaction was a loan, and not a partnership, and
therefore usurious. The fact that the transaction was between
partners did not take it out of the question of the statute against
usury. To have that efiect, it must be a pa/rtnersMp transaction
{^Cooper V. Twppom, 9 Wis. R., 361).
In the State of Yirginia, ijx a ease where a debtor owing a cer-
tain number of shares of bank stock agreed with his creditor to
pay him, at a fiiture day, the market price of the stock on that
day, or $150 per share, at the creditor's option, with the dividends,
the court held the contract usurious. The doctrine laid down by
37
;
290 LAW OF VSTTRY.
the court was, that where, Upon a loan of money, the lender,
'
besides his principal, contracts to receive, in lieu of interest, some-

thing which may be worth more than the legal interest, though it
may, perhaps, prove to be worth less, the contract is usurious and ;
the case before the court was held to be one of that character, and
was, therefore, declared to be usurious {Smith v. Nichols, 8 Leigh^s
R., 830).
A late English case may be referred to, holding a transaction to
be usurious, although the same was in the form, and partook
somewhat of the nature, of &post obit contract or bond.
By a deed, dated in 1819, A., in consideration of £500 paid to
him by B., conveyed a reversion of real estate, expectant on the
death of 0., the trustee, upon trust,
if he should die within five
and pay to B. the sum of £1,500. At the date of

years, to raise
the deed, C. was sixty-one years of age but he survived until
;
1844, when he died. The court held that the deed of 1819 was
void for usury {Mansfield v. Ogle, 31 JEng. Law am,d Ec[. R., 35Y).
A hona fide annuity exempted from the operation of the
is
statute of usury, because of the hazard which the grantor runs of

ever receiving an equivalent to his principal. This has been here-
tofore shown but cases nomi/nall/y in the .form of an annuity have
;
been declared by the courts to be tainted with usury, notwith-

standing the form of the transaction.
An early case in the English courts was of this character. The
action was trespass, de cla/uso facto, in Nôrthall. Plea, not guilty.
A special verdict was found, that Cyprian Cory was seized in fee
of the land in question and that it was agreed that one Mary
;
Addington should lend him £150, and, for the security of the
repayment thereof, Cory leased to the said Mary his store for sixty
years, to commence at the end of two years, upon condition that if
he paid the £150 at the end of two years the lease should be void
and it was further agreed between them that the said Cory, for
the deferring and giving day of payment of the said £150 for two
years, should pay to the said Mary for interest yearly £22 10«., quar-
Mary should live so long that in performance of this
terly, if the said ;
agreement she lent the said Cory £150, and he made the said lease
for sixty years, and granted by fine to the said Mary an annual rent
of£22 10«., to be paid quarterly, if she lived so long, and aftei>
ward conveyed the inheritance to the plaintiff and that the said
;
£150 was not paid and that the said Mary took to husband Tre-
;
TRANSACTIONS BELD VSURI0U8. 291
nayne, who entered for non-payment, et si svêr toimm, etc. The

first question was, whether it was a usurious contract within the
statute, because it was a mere casual bargain for if she dies before
;
any day of payment of the rent, the rent was gone, and yet he
should retain the £150 for two .years and pay nothing for it. It
was resolved that it was a usurious contract for by intendment she
;
might live above two years, and an apparent possibility that

it is
she should receive that consideration whereby the case was within
the statute {Roberts v. Trenayne, Cro. Jog., 50T).
Another early English case was this The action was on the
:
statute of usury. At the trial, Richard Heighway, who was the

, borrower of the money, and the only witness as to the transaction,
swore that he borrowed of the defendant £200 in the year 1769,
which was settled six months after ; that on the 5th of September,
he applied to the defendant to lend him £600, saying he
1"770,
was owner of £2,042 bank annuities vested in trustees, to be trans-

ferred to him upon making out his title to an estate which was
very clear; and showed Brown the declaration of trust. The
defendant said he would lend him £600, or £1,000 and supplied ;
him with £200, for which Heighway gave him a bond, and deposi-
ted the declaration of trust as a collateral security; and Brown
promised he should have the remaining £400 in a fortnight's time.
On the lYth of September, Heighway called for the £400. The
defendant then told him " money was very scarce, upon the prospect
of a Spanish war." Heighway pressed him very much ; upon which
he said he would see what could be done, and bid him call the next
day. Heighway did so in the morning, but the defendant was
not at home. He called again in the evening, and then saw Brown,
who said he was afraid he could not raise it himself, but would try
to get it of a friend in the city, who never was without money,
^
but he was a very hard mam,. Heighway asked what his terms
were. The defendant said they were so exorbitant he was almost
ashamed to name them. Heighway said he would rather pay
twenty or thirty guineas than not have the money. The defendant
said his friend was not so hard as that; but that he never lent
money but v/pon am/rvwities at six years' purchase. " However,"
said the defendant, " if you will take the money on those terms,
I will engage to furnish you with money to redeem in three months'
time. The grantee's annuity will come but-to £17 10s., which wiU
be better than giving twenty or thirty guineas." This being
292 LAW OF USWBT.
'
agreed to,on the 20th of Septemher, 1770, Heighway called upon '
Brown for themoney, and found a bond and warrant of attorney

etc., prepared for receiving an annuity from him to one Waters.
Heighway executed it, and Brown signed it as the subscrihing
witness. Brown
After the bond was executed, he was always
said
used to have £5 per cent proouraUon money / Heighwaybut, as
was distressed, he would only take two a/nd a half per cent, and
accordingly took fifteen guineas, and Heighway left the declaration
of trust with him. Heighway said, " the defendant first proposed
an annuity he himself would not have granted one." When the
;
first quarter's annuity was due, Heighway applied to the defendant
and pressed him for money to redeem, as he had promised but ;
Brown refused. He then asked for the declaration of trust ; the

defendant said if he insisted upon it. Waters would enter up judg-
ment. Heighway insisted upon it and judgment was entered up.
;
Heighway paid the defendant one quarter's annuity, and one quar-
ter to the defendant's partner. The defendant often denied that
he had promised Heighway money to redeem and said he won- ;
dered how he could expect him to lend money at five per cent,
when others made sixteen and a half per cent of their own money.
Afterward, BroWn acknowledged he was himself the principal
that advanced the money and enjoyed the annuity, and said that
Mr. Waters, whose name he had made use of, was his trustee.
Waters swore that the defendant had sometimes purchased annui-
ties in his name, but that he knew nothing of this.
The trial was had before Lord Mansfield, who told the jury, if
they were satisfied that, in the true contemplation of the parties,
this transaction was a purchase by the one, and a sale by the other,
of a real annuity, how much soever they might disapprove of or
condemn the defendant's conduct, they must find a verdict for him.
But, on the contrary, if it appeared to thfem to have been, in real-
ity and truth, the intention of both parties, the one to borrow and
the other to lend, and that the form of an annuity was only a mere
fraud on the necessity of the borrower by the lender, under color
of which he might take a usurious and exorbitant advantage, then
they might find for the plaintiff, notwithstanding the contingency
of the annuitant dying within three months, more especially as it
was understood by both that the annuity, at the expiration of three
months, was to assume the direct shape of a loan. The jury failed
at once to agree, but, coming before the court, the former direction
;
TBANSACTIOffS BMLD USUMIOUS. 293
was repeated to them ; they retired again, and at length found for
the plaintiff.
The defendant made a motion for a new trial, and the case was
f^rgued at considerable length. Lord Mansfield, after adverting to
the facts and the direction he gave to the jury, said :

" The ques-
Jtion is, what was the substance of the transaction, and the true
intent and raeaning of the parties ? For they alone are to govern,
and not the words used. The Substance here was plainly a horrow-
mff and Imddng / Heigh way had no idea of selling an annuity
but his declared object was to borrow money and accordingly he
;
deposited the declaration of trust, which was an ample security for

the sum he wanted. He goes further, and says, rather than not'
have the money, he would give £20 or £30 premium for it.'
Brown tells him it must be by annuity ; that his friend never lent
money in any other shape and in that method he might have it
;
for legs, viz., £17 10s., as after the first quarter he would let him
have money to redeem. On the assurance that the annuity should
be turned into a loan at the end of three months, the treaty pro-
ceeds. came out that the defendant himself advanced the
It
money. That alters the case entirely. If "Waters indeed had been
really the principal, this promise of Brown would have amounted
to no more than a promise^to lend at the end of three months.
But Brown himself being the principal, the promise to lend him
money to redeem must be understood to be a promise to permit
him to redeem. It is true there was a oontmgency during the
three months. It was that which occasioned the doubt whether a
contingency for three months is sufficient to take it out of the
statute. As to that,, the eases have been looked into, and from
them it appears that, if the contingency is so slight as to be merely
an evasion, it is deemed colorable only, and consequently not suffi-
cient to take it out of the statute. Here the borrower was a sale
money man, and, therefore, we are of opinion that there was no
substantial risk to take this case out of the statute" {Bicha/rds,
qui tarn, v. Brown, Cowp. B., 7T0).
A case decided by the English Court of Common Pleas, early in
the present century, is also a very good illustration of the point
under consideration.
The action was debt on a bond, and the defense was usury.
The case was tried before Lord Alvanley, C. J., where the jury
found a verdict for the plaintiff, subject to the opinion of the
:
294 I'-^w OF osusr.
court upon a special case ; at the same time declaring that they
believed the plaintiff, Sir Charles Marsh, did not think that" he
was acting contrary to law.
The material facts of the case may be stated thus : The grantor
of an annuity having agreed with the grantee to redeem, drew a
bill of exchange for £5,000 at three years, which the grantee dis-
counted in the following manner : He took £4,083 6s. 8d. as the
amount and arrears, advanced £166 13«. id.

of the purchase-money
to the grantor in cash, and took £750 as interest for three years
upon £5,000. The court held the transaction to be usurious.
Lord Alvanley, 0. J., delivered the opinion of the court, and said
" It is contended, on the part of the plaintiff, that the transaction,
as it appears upon the case, is neither more nor less than the pur-
chase of an annuity, and not in the nature of a loan or sum taken
for the forbearance of money due ;" and if that could be made out
the plaintiff would be entitled to recover. * * * Then, is this
transaction the purchase of an annuity, or is it not ? I admit that
if the annuity had been irredeemable the plaintiff would have
had a right to say that he would not seU it under £5,000. But
here Colonel "Wood was entitled to redeem the annuity on payment
of the several sums stated in the case, amounting to £4,083 6s. 8^.
It was, then proposed that Sir Charles Marsh should advance
£166 13s. 4:d., making, Avith the purchase-money of the annuity,
£4,250, and that he should discount a bill of £5,000 at three years.
What is this but forbearing for three years to take the sum of
£4,250, for which forbearance he was to receive interest on £5,000 ?
The jury were impressed with a notion that a bill at three years
was such a bill as no reputable man would discount, though it was
said that some East India bills of two years' date had been dis-
counted. * * * I think, therefore, that the discount of such

a bill as this, not coupled with the transaction respecting the
annuity, would have been almost sufficient to have afforded a pre-
sumption of usury ; but, coupled as it is with the redemption of
this annuity, it is impossible to wink so hard as not to see what
the real transaction is " {Mot/rsh, v. Ma/rtindaU, 3 JBos. dk Pul. B.,
154, 158-160).
In a leading case before the Supreme Court of the United States,
the distinction between those transactions, in the form of an

annuity, which are and are not usurious, is discussed, and the true
doctrine laid down. The facts of the case, in a very few words,
:
TRANSACTIONS HELD USUBIOUS.' 295
(rere these : Schofield being seised in fee of certain property, in

consideration of $5,000, granted to Moore an annuity of $5,000
to him and his heirs, with a right to distrain for non-payment. In
the deed granting the rent-charge Moore covenanted that, at any
time after five years, on the payment of $5,000 with all arrears of
rent, he, Moore, would release the rent-charge. Schofield con-
veyed the property to Lloyd subsequent to the payment of the
rent. Moore, the rent being unpaid, levied a distress on the same,
and Lloyd brought replevin and set up a defense that the transac-
tion was usurious.
The cause was tried before the Circuit Court of the United
States for the county of Washijjgton, in the District of Columbia,
and the transaction was found to be usurious. -The defendant
brought error to the' Supreme Court of the United States, where
the judgment of the Circuit Court was reversed on the sole ground
that errorwas committed in allowing a certain witness to be sworn
and give evidence who was held to be incompetent. An elaborate
and very able opinion was delivered by Chief Justice Marshall,
who examined the authorities upon the subject and laid down the
rules by which such cases were to be determined {Scott v. Lloyd, 9
Peter's E., 418).
The chief justice, in the course of his opinion in the case of
Soott V. Lloyd, refers with approbation to an important case decided
by the lord chancellor of England. The case was briefly this
Thomas Lawley being entitled to an annuity of £200 a year for
life, sold £150, part thereof, to Eowland Davenent for £1,050,
with power to repurchase, on giving six months' notice. After

the death of Davenant, Lawley brought this bill against his execu-
tors for an account, and that upon payment of what should be due,
the defendant might reassign the annuity to the plaintijBE.
In giving his opinion, the lord chancellor said: "There has
been a long struggle between the equity of this court and persons
who have made it their endeavor to find out schemes to get exor-
bitant interest and to evade the statute of usury. The court very
wisely hath never laid down any general rule beyond which it
will not go. * * * In this case there are two questions to be

considered : 1. Whether this assignment is to be considered as an
absolute sale or security for a loan. As to the first, I think,
though there is no occasion to determine it, there is a strong
foundation for considering it a loan of money, and I really believe
:
296 LAW OF USURY.
in my conscience that ninety-nine in a hundred of these bargains

are nothing but loans, turned into this shape to avoid the statute
of usury." The lord chancellor then proceeds to state the circum-
stances under which the contract was made, and the character of
the contract itself; and although there was no treaty about a loan,
he concludes with saying " Therefore, upon all the circumstances, I
:
think it was, and is to be taken, as a loan of money, turned into

this shape only to avoid the statute of usury ; but I do not think I
am under any absolute necessity to determine this point, for I am

of opinion that this is such an agreement as this court ought not to
suffer to stand, taking it as an absolute sale." And the ruling
asked by the plaintiff in his bill was granted {Lamley v. Hofrper, 2
Atlc. R., 2Y8).
Other approved English authorities are referred to by the

learned chief justice of the United States, in his opinion, which
recognize the doctrine that loans, on a fair contingency to risk the
whole money, are not within the statute against usury that a man ;
tnay purchase an annuity as low as possible, but if the treaty be

about borrowing and lending, and the annuity only colorable, the
contract may be usurious, however disguised ( Vide Imhwm v.
GhiU, 1 Bt. Ch. R., 93 Drew v. Power, 1 Sch. andJLef. R., 182).
;
In conclusion upon this point of hazard, a late case may be

referred to, which was decided by the Court of Common Pleas of
the city of New York. The case was this A., at the request of
:
B., advanced to him the amount of a month's salary, which B. had

to earn, and agreed to pay at the expiration of the month, and
took an assignment from B. of his salary as security. The amount
of the month's salary was $67.94, for which B. received only
$62.53, the sum of $5.42 being the interest allowed, which was
more than the legal rate. The court held the transaction to be
usurious. Brady, J., delivered the opinion of the court, and said
""When th.e lender of money assumes a risk upon the loan, by
which repayment is hazarded, the contract will not be usurious,
although an exeeessive rate of interest be charged. * * *
This is not such a case. The security alone was one which
depended upon a contingency, but the principal was not hazarded,
the defendant being liable, though that security should fail to yield
anything. * * * At first blush it appears to be one in. which
the plaintiff assumed the risk of the defendant's earning the salary.
* * * The case, on a full understanding of it, is one of a loan
at an excessive rate of interest " {Rowe v. Oimaon, 26 Sow. Pr.
B., 360, 362).
CHAPTEE XXII.
TRANSACTIONS HELD TO BE USTTKI0U8 CASES OF ALLEGED PBNALTT

—
TAKING INTEREST IN ADVANCE ANTEDATED INSTRUMENTS —
CASES IN WHICH GOODS ABB ADVANCED INSTEAD OE MONET.
Where money is reserved in

the exorbitant profit for the use of
the nature of a penalty to be paid upon some default, which the
borrower may avoid by the payment of the principal, and thus
defeat the interest, if the transaction is made in good faith, it will
be exempt from the operation of the statute against usury. It
occasionally occurs, however, that a transaction supposed to be
within this principle is held by the court to be otherwise.
A ease of the character supposed was, some time ago, decided by
the courts of the State of Kentucky. A judgment was recovered
against a principal and surety. Then, in pursuance of an agree-
ment, the surety signed the replevin bond, and the principal gave
him a note which included the full amount of the replevin bond,
with about thirty per cent added to it, and the surety agreed in
writing to credit the note with the same amount, provided the
principal paid the replevin bond himself. It was conceded in
the pleadings in the cause that the arrangement was intended not
merely to have the effect of a penal bond, but as an indemnity to
the sarety, in case the payment of the replevin bond should
devolve on him. The court held that this contract was not an
agreement for a loan of money, in a certain contingency, at a
future day, upon an agreement that more than legal interest should
be paid for the loan, and was usurious {Morns' Executors v. Yance,
8 Dands R., 362).
"Where the lender receives the interest upoa the sum, but before
the end of the term for which the money is loaned, he clearly receives
more than the legal rate and yet cases have been referred to in
;
preceding chapters where the practice was held not to be usurious.

There are instances, however, of this character, which the courts
have decided to be within the statute of usury. And a distinction
was early made between the receipt of interest before the end of '
38
298 LAW OF USURT.
tke term and a reservation of the interest for the whole term, pay.
able at certain periods within that term. The majority of opinions
formerly were adverse to the legality of the first, and favorable* to
the validity of the latter. But the later cases do not seem always to
have been decided in the light of this distinction. With regard
to the taking of interest at the time of the loan, the most of the old
cases hold such transactions usurious ( Vide Barnes v. WorUch,
Cro. Jac, 25 ; Anonymous, 1 Bulstr. M., 20).
The courts uniformly hold, at the present day, that the inte-
rest for ordinary paper having the usual time to run, such as is the
practice by banks, may be taken in advance, by way of discount,
and not subject the paper to the taint of usury. It is obvious,
however, that the length of time the paper has to run must have
a controlling effect upon this question. If the note has a short
time to run the interest may
be taken in advance, whereas the
time may be so lengthened out as to make the taking of the
interest, in advance, palpably usurious. A case might easily be
supposed where this practice would give to the lender fifty per
cent interest for the use of his money ; and, indeed, the absurdity
of an unyielding rule upon the subject becomes very apparent by
increasing, the number of years the paper has to run. It might
be extended until it will be found that the person
coming to get a
bill discounted, for example, for a period of twenty years, instead
of having anything to receive will have something to pay.'

A late case in* the State of Arkansas, where a bond was given to
an internal improvement commissioner, in his official character,
for money borrowed, "with ten per cent interest per annum,
semi-annually in advance," the court held the transaction usurious
and void, on the ground that the statute limits the rate to ten per
cent per annum, and the stipulation for payment in advance
increases the rate beyond that amount {Hoga/n v. Ha/nsl&y, 22
Arh. B., 413).

Cases have been heretofore referred to in which it has been held
that the antedating an instrument, payable with interest from the
date, is not necessarily usurious ; but this depends entirely upon
the circumstances of the transaction.
A case came before the vice-chancellor of the first circuit of the
State of New York, in 1842, where it appeared that a bond for
money loaned was dated previous to the transaction, and the lender
at the time insisted that interest should be paid from the date of
the instrument, and the negotiation was accordingly completed

with that understanding. The court decided that the bond was
usurious {Lynde v. Stoats, 1 if. T. Legal Ohs&rver, 89).
A very easy and ready way of evading the statutes of usury has
been the expedient of a pretended sale of wares, while, in reality,
the wares were furnished to the buyer at a price beyond their real
value, to enable him to sell them for what he could get to relieve
his necessities and when such a proceeding has come before the
;
courts, they have universally held it to be usurious.

An early case in the English Court of Chancery well illustrates
the doctrine on this point. The plaintiff, who was a student of
Wadham College, Oxford, desiring to raise a sum of money
immediately after his coming of age, applied to Alcan, a Jew,
through whom he was introduced to James Yansommer and
Paul; and they, upon inquiring into his circumstances and finding
him entitled to some reversionary property, agreed to let him
have silks to the amount of £2,224, for which Baker gave a
promissory note, payable a year after date. Alcan officiated as
the adviser of Barker during the negotiation, and the silks were
delivered to and sold by him on Barker's account for £799. In
the meantime James Vansommer and Paul indorsed the note over
to John Yansommer, one of the defendants, who had had no share
in the previous transaction. A bill was afterward brought in the
Court of Chancery to compel the defendants to deliver up the
plaintiff's note, upon payment of what the silks really produced
upon sale and it was contended for the defendants that there was
;
an absolute sale. But the court held the transaction to be usurious.

Lord Chancellor Thurlow said: "I am to inquire whether,,
under the mask of trading, this is not a method of lending money
at an extraordinary rate of interest. There is no doubt that if
they had talked of this as a loan of money there would have been
an end of the case. The question, then, is only, whether there is
any method of showing the court that they meant so, short of
their treating of it as such in plain language. There is not a
doubt that in this ease the transaction was merely for the purpose
of raising money to supply the necessities of this young man.
Do they deny knowing the goods were to be sold ? I take it,
therefore, as an advancement of goods, instead of money, to supply
his necessities " (Bar'ker v. Vansommer, 1 Br. Ch. R., 149).
A case of a similar nature vas decided in the English Court of
300 JC'AW OF UB.UBT.
King's Bench about the time that Barker's case was decided lay
the Court of Chancery.

The defendant, Waller, had employed one Lemon, a money
broker, to raise the sum of £200 for hinj. Harris & Stratton
hearing of this, sent their broker to Lemon to inquire whether
Waller wanted money, and would advance hjm
to say that they
£100 in money and £100 m
but that the goods should be
goods.,
choice sorts and he should not lose by thera, for he should have
them at the warehouse price. Waller accordingly went, in eorn-
company with Lemon, to the warehouse of Harris & Stratton,
who made an apology for having then no money, but goofils., and
desired the matter to rest a few days. Upon another application
by Waller, they told him they could not let him have money,
but if he would take the whole in goods, he should have thenj
directly. Waller a,greed, and the goods (hosiery ware) were sorted
,
out by one Stratt, a broker who was present, and delivered to

Waller, who gave to Harris & Stratton a bill of exchange for
£220. Strutt and Lemon then carried the goods to an auctioneer,
,who sold them for £117 2«. 2^. An action was broinghfrupon the
bill of exchange, and the defense of usury was interposed. The
question was submitted to the jury whether the transaction was a
loan of money more than the legal rate of interest;, under colpr
for
of a sale of goods, and the jury found the contract to be usurious.
A rule, however, was obtained for a new trial, on the gronB^'
that the transaction was not a loan, but a sale oi goods ; and, there-
fore, though it might be fraudulent, it was not within the meaning
of the statute of Queen Anne. But the court expressed the opin-
ion that, in all these cases, the question is, what is thp real substance
of the transaction, not what is the color and form, and that here
there was no other idea than a loan of money and, hence, the ;
transaction was usurious. The rule was, therefore, discharged

{Lowe V. WaUer, 2 Doug. B., 736).
The rule is, therefore, well established by ancient authorities,
and the same is recognized at the present day, that where usury is
disguised under a sale of merchandise, the property in the goods
passes to the vendee, but the excess of price over the just value is
considered as a premium for the forbearance of the debt, founded

on a presumed loan of so much of the purchase-money as is equiva
lent to the cash value of the commodity sold. It will be observed,
however, that, in all these cases, the object with which the person
TBANSAOTIONS BSLD USUBTOUS. 301
taking the goods entered into the transactionwas the immediate
means of supplying his wants and that the sale adopted was only
;
colorable, and not in the common course of trade.

The same rale applies to a sale or exchange of choses in action,
or credit, orwhere a part only of the consideration is a transfer of
chattels, when the real object is a loan of money, although, in fact,
no money is received by the borrower. The law, looking at the

substance of the transaction, converts the substitute agreed upon
bf the parties into money according to its cash value. So that, in
every instance where the object of the parties is a loan of money,
and something else, under the form of an exchange or sale, is
substituted for it, the principal of the loan, and consequently of
the debt contracted by the nominal vendee, will be the value in
money of the substitute received by him and any consideration
;
paid or reserved to the vendor beyond that will, in general, be con-

sidered as interest for its forbearance ; and, if exceeding the legal
rate, will be regarded as excessive and usurious.
A reference to a few of the leading American authorities will
further illustrate the doctrine. An early case in the late Court of
Chancery of the State of New York is to the point. An applica-
tion was made for a loan of money, and the lender imposed, as a
condition of the loan, that the borrower should purchase certain
shares in ah insurance company, at par, when the shares were, in
fact, below par, and it was, at the time, impossible to ascertain the
cash value of the shares, the corporation having failed and the ;
loan was accepted upon that condition. The court held that the
transaction was usurious and, in accordance with the law as it then
;
stood, when relief was sought in equity against a usurious trans-

action, the court rescinded the sale and ordered a re-transfer of the
stock, and that the sum agreed to be paid for it should be deducted
from the security {Eagleson v. ShoPwell, 1 Johns. Oh. B., 536).

And to the same import is an early case decided by the old
Supreme Court of the State of JSTew York. A. lent B. $687, to
be repaid on a certain day, with interest, and B., in consideration
of the loan and forbearance, purchased of A. sixteen shares of
turnpike stock, for the sum of $400. The evidence showed that
the turnpike stock was not, in fact, worth over $250 at the time
of the purchase but B. gave his bond for the $687, together with
;
the $400 for the stock. The court held that the sale of the stock
was merely colorable, and that the transaction was, therefore, usu-
302 -LAW OF USURY.
rious,and the bond given for the money loaned and stock trans-
ferred was void {Rose v. Dickson, Y Johns. M., 196).
Another strong ease upon the point may be refeixed to, which
was decided by the same court, at a much later date. One Collins
entered into a written agreement with the Bank of Rochester, by
which he covenanted to assign to the bank, bonds and mortgages
on real estate to the amount of $13,000, payable in five years, with
interest semi-annually, and to guarantee the payment of them; ia
consideration whereof, the bank agreed to transfer to Collins cer-
tain stock to the amount of $6,500, at its nominal value, and to
pay him the balance in money. Afterward, the bonds and mort-
gages not having been assigned, the bank transferred the stock and
paid the money, on receiving two notes for $6,500 each, agreeing
to take the bonds and mortgages in payment, if delivered before
the notes became due. The assignment of the stock and payment
of money formed the only consideration of the notes. An action
was brought to recover the amount of one of the notes, and the
defendant interposed the defense of usury. It appeared on the
trial that the stock, which was that of the Rochester Cotton Manu-
facturing Company, was, at the time it was transferred to the bor-
rower, twenty-five per cent below par. The judge at the circuit
charged the jury, among other things, that if they should be satis-
fied the transaction was intended by the parties (Collins and the
bank) as a cover for a usurious loan, the defendant would be enti-
tled to a verdict ; but if, on the other hand, they thought the eon-
tractbetween the parties such as the two written agreements and

the note imported on their face, and nothing more, they should
find in favor of the plaintiff. The jury rendered a verdict for the
plaintiff, and the defendant moved for a new trial on a ease. The
court held the transaction usurious, and set the verdict aside.
Cowen, J., delivered the opinion of the court, and said :
" The
various agreements, notes and other arrangements were all parts
of one transaction, effect of them was to secure more
and the
than seven per cent per annum to the bank for the loan. The
whole was radically and necessarily vicious because of such a
usurious effect, by which the intent of the parties must be judged,
and there was no question for the jury " {Seymour v. Si/rong, i
mWs R., 255, 258).
A case in the North Carolina courts was this : The plaintiff
purchased a bond of the defendant at a discount of more than legs^

TRANSACTIONS EELD USURIOUS. 303
bond in a form which
rate of interest, the defendant indorsing the
bonnd him to guaranty the payment of the whole money due upon
it. The court held the transaction usurious.
Taylor, C. J., said :
" The character and substance of this trans-
action bespeak it to be a loan of money,' although the parties con-
stantly speak of a sale, and not a whisper is heard relative to a
loan." He it had been a sale in truth,
further observed, that if
the assignor would have nothing to do but receive the price, and
leave the assignee to obtain the money as he could from the obli-
gors. The money was to be received for the assignor's benefit,
and, the learned chief justice added, " if he had meditated a sale
of the bond, he would undoubtedly have withheld his indorsement.
But by adding that to the bond, he undertook on his part to repay
the money, which should be seized on in the event of the obli-
gor's delinquency. This appears to me to be the unequivocal
characteristic of a loan, that the money is in. all events to be repaid
with interest by the borrower himself, or out of his funds " {Muffin
•V. Armstrong, 2 KawTSs R., 411).
In the State of Kentucky, where a party made a contract for

the purchase of a slave at half price, and at the same time to lend
the owner another sum, with a condition that if a sum, larger than
the purchase-money, the loan and the interest combined, should
be secured, the slave should be restored and the lent money con-
sidered as paid, the court held the transaction usurious {Shanks v.
Kennedy, 1 A. K. Marsh. B., 65).
A transaction was brought before the courts
similar in its nature
of South Carolina, and declared to A. asked $1,000
be usurious.
for a negro, which B. was willing to give, but could not pay cash,
and A. was willing to give B. any time which he might want if he

could have the price increased by the addition of ten per cent per
annum until payment. After consultation as to the best method
of carrying out their bargain and avoiding usury, they agreed that
B. should fix the time and A. the price. B. said he must have
three years, and A., the plaintifi^, said he must have $300 more.
Accordingly a bill of sale was drawn expressiog the consideration
to be $1,000, and a note was given by B. to A. in the following
words " Three years after date I promise to pay A. or bearer
:
$1,300, to be paid at such time as I please, and to deduct ten per

cent per annum off of the amount paid at each payment." The
304 LA^ OF VSVEY.
court held that the transaction was usurious {Thompson v. Nesbit,
2 Rich, E., 73).

In the State of Illinois, a case came before the courts, substan-
tially thus A. being embarrassed in his circumstances, was told
:
by B, that C. would like to purchase certain real estate, of which

A. was proprietor, upon the same terms as he had been informed
that another person had purchased from A. and B., to wit Upon :
receiving a guaranty that the estate would rise in valae fifty per
cent per annum. A. offered the same to C, who refiised to pur-
chase, saying he had no confidence in the property. A. then said
that he wanted to raise $500, and would sell 0. to that amount,
and guaranty a rise of fifty per cent a year for two years. C.
replied, that if he would procure B. to become a guarantor to that
effect, he would advance the sum required, and that A. might
select the lot. A. selected and conveyed a lot by deed of warranty,

received the money, and entered into a bond with B. to C, which ,
contained the following recital and conditions, that is to say " The :
said C. being seized in fee of the following town lot " (describing
it) " if the said C, shall, on the 11th day of May, A. D. 1839,
tender to the said A. and B. a good and sufficient deed of the

aforesaid lot, the said A. and B. shall pay to the said C, his
heirs, etc., the sum of $1,000. It is agreed that, if the said deed is
not tendered as aforesaid, this agreement is void." The court held

that the transaction was clearly usurious ; that the deed, bond, etc.,
should be taken together; and that, thus construed, they were

merely a mortgage to secure the sum advanced with exorbitant
interest {Delamio v. Rood, 1 Oilman's R., 690).
Another case may be cited from the same State, and decided by
the same court. A. and B. having made improvements upon pub-
lic lands, applied to C. for a loan of $1,110, in order to purchase
them. An agreement was made that C. should advance the money,
and purchase the lands in his own name as security for the loan,
and that they should pay him $330 per year for three years, and
$1,430 at the end of four years, when C. was to sell and convey the
lands to them. It was further agreed that, in default of any of
the payments, 0. was authorized to declare the contract at an end,
and all previous payments were thereupon to be forfeited; and A.
and B. were thenceforth to be considered as tenants-at-will of C,
at an annual rent equal to ten per cent interest on the $3,400, pay-
able quarter-yearly. On a bill in equit;^ for relief brought by A.
;
TRANSACTIONS BELD USURIOUS. 805

and B. against p-, they bringing into court $1,100 and legal inte-
rest, it was held that the contract was usurious, and 0. was ordered
to convey the premises to A. and B. in fee {Fm-guson v. Sutphen,
3 Oilman's E., 547).
In the State of New Jersey, a case came before the courts, in
which it appeared tha,t a party made a loan of money to a corpora-
tion, on condition that the lender should be employed by the cor-

poration in an official position, where he was not needed, and paid
a very large salary, though the place was,- in fact, a sinecure. The
transaction was held to be usurious {Or'^ffm v. Iêw Jersey, etc.,
Company, 3 Stooktoinls R., 49).
And in another case in the same State, wherein it appeared that
A. agreed to loan to B. $2,000, on condition that B. would receive
from A. $8^0 in goods, at prices fixed by A., and pay, or allow A.
to detain, five per cent, or $100, on the remaining $2,000, and give
. A. hie bond and mortgage for $2,800, with lawful interest, the
'Court of Chancery held and declared that the bond and mortgage
were usurious {BrolesTcy v. Miller, 4 Halst. Ch. B., 626).
In the State of Mississippi it has been held, where the terms of
a sale were cash, but a promissory note was taken for a part from
the purchaser, reserving, in terms, more than legal interest, that
the transaction was usurious; although it was declared by the
court that it would have been held otherwise if the note had been
for a gross sum, according to the terms of the original agreement,
compounded of a smaller sum, and interest exceeding the legal

n\B {Mitchell V. Griffith, 22 Miss. R., 515).
In an action brought upon a promissory note in the State of
Connecticut, the defendant stated in his defense the following
facts : That the plaintiff loaned to the defendant $800, and received
as security an absolute deed of a piece of land of much greater
value, upon ah agreement that the defendant might redeem the
land upon paying the sum loaned, with twelve per cent interest
that the defendant should remain in possession of the land, and
pay therefor forty-eight dollars per year, being the simple interest,
as rent, forwhich rent the note in question was given. And, it

appearing to the court that this was a true statement of the case,
it was held that the transaction was usurious, and the note in suit
void {Mitchdl v. Preston, 5 Bay's R., 100).

The late Court of Chancery of the State of New York held,
where the condition of a discount by a bank was that the borrower
39
.
306 . JÂW OF aSURY.
should receive bills of exchange in payment, at more than their

cash value, instead of money, that the loan was usurious ; and that
a custom among sellers of such bills to charge more for them when
sold on credit than when sold for cash could not purge the trans-
action of usury. And it was declared that selling uncurrent bank
notes, which are two or three per cent below par. in the market,
for their nominal amount in current money, to be paid in thirty days,
if a cover for a loan, is usury {Pratt v. Adams, 7 Paige's B., 615).
Another very important case came before the same court, and
was disposed of upon similar principles by the assistant vice-chan?
cellor of the first circuit. The case was this bank, which had: A
stopped specie payments, and wanted money to enable it to resume
and save its corporate franchises from forfeiture, applied to a trust
company for q. loan and an agreement was made to the effect
;
that the bank should deliver to the trust company their own bills
of credit, or bonds, for $250,000, payable to the latter in sterhng
money, at five dollars to the pound, at a banker's in London, in
installments, to become due in 1842 and thereafter, with interest

at six per cent per annum, payable semi-annually, and secure the
£50,000, with the interest, by a trust conveyance of lands situate-
in New York, worth double the amount ; that the bank should
accept therefor the trust company's certificates, or obligations, for
£48,000, payable in London in 1839 and 1840, with interest at
five per cent and that the bonds of the bank, with the interest at
;
seven per cent, should, in fact, be paid to the trust company in

ilfew York, and that the company was to guarantee the payment
of the bonds of the bank. Each certificate issued by the company
in pursuance of the agreement, recited that it was part of a loan
of ;^0,000, and the trust deed professed to be security for a loan
from the trust company. The court held that the transaction was
a loan of choses in action, that there was no ground for the deduc-
tion of the £2,000, consistent with the innoceney of the transac-
tion, and that the contract was usurious and void {Wew Yorh Pry
,Poch Ba/nJc v. American Life Insuram.ce a/nd Trust Co., 4 Sand.
Oh. E., 215).
The decree in this last case was reversed, on appeal to the
Supreme Coijrt, sitting in the first district, and the bill dismissed,
with costs. From that decree the complainants appealed to the
Court of Appeals, where the decree of the Supreme Court was
reversed, and that of the assistaijt yiee-chancellor affirmed.
TRANSACTIONS HELD USUBIOm. 307
Gardiner, J., in his opinion, said :

" The trust company advanced
their post notes (for their certifi'ates are nothing else) as cash, at
their nominal value, which I assume to be their true value in

money, in the same manner that a bank of issue would receive and
discount a note for a customer. In both cases there would be an
;exchange of promises. In each the property in the notes issued
would vest in the receiver, and in neither would any money be
paid ; but, in both by the understanding of the
cases, a substitute,
parties, is advanced by money by the

the lender, and accepted as
borrower. Every transaction of the kind, when analyzed, will be
found to be a loan of money, whether designed or not, under the
form of exchange. If, then, the transaction was a locm, as the
agreement asserts, it follows that the $10,000, above mentioned,
must be held as compensation for the forbearance of a debt incurred
by the complainants as iorrowers of money, for which the certifi-
cates were substituted at the nominal, which was the true value,
by the understanding of the parties. This being in addition to

the seven per cent reserved by the was usury, and the
contract,
bUls of credit and trust deed are consequently void" {The Dry Dock
Bmik V. The Ainericcm Life Insurance cmd Trust Co., 3 iT. Y.
B., 344, 361, 362).
Eeverting to the English authorities upon the phase of the sub-
ject now under consideration, where the defendant had applied to
the plaintiff to discount a bill of exchange for £700, which the
plaintiff refueed to do, except on the following conditions that is :
to say, that the defendant should take a banker's check for £250,
a promissory note at two months for £286 12s., and a landscape in
imitation of Poussin, to be valued at £250, to which the defendant
acceded ; Lord Ellenborough laid down this rule :
" "When a party
is compelled to take goods in discounting a bill of exchange, I
think a presumption arises that the transaction is usurious. To
rebut this presumption, evidence should be given of the value of
the goods by the person who sues on the bill. In the present case
I must require such evidence to be adduced and I wish it may be
;
understood that, in all similar cases, this is the rule by which I

shall be governed in the future. When a man goes to get a bill
discounted, his object is to procure cash, not to encumber himself
with goods. Therefore, if goods are forced upon him, I must have
proof that they were estimated at a sum for which he could render
them available upon a resale, not at what might possibly be a fail
308 LAW OF USURY,
price to charge to a purchaser wjio stood in need of them" {Dmis

V. HcMfdacre, 2 Gamp. N. P. O., 375).
And in a case decided by the English Court of Common Pleas

in which the action was for the penalty of the statute 12 Anne,
ch. 16, the declaration stated a specific sum of money to have been
lent (inwhich the usury consisted) ; but the evidence was, that the
loan was part m
money, and the rest in good's of a known value,
which the party recei ving the loan agreed to take as cagh it was held ;
that it was clearly a usurious transaction, and that the evidence

was competent to support the declaration. Heath, J., said " The :
declaration seems to me to be well framed and sufficiently proved.

It would make a great difference if the delivery of the goods was
to be a part of the shift, and no part of the original contract. I
do not see two contracts, as it was said there appears to me to be
;
but one; and a piece of bullion was substituted as coin" {Burke

V. Pmle&r, 1 E. Black. B., 283, 284).
And in another case, at nisi prius, it was held that if, in dis-
counting a bill of exchange, the discounter gives goods in part,
which are taken for above their real value, it is usury. And, fur-
ther, that it is the province of the jury to decide whether, on the

evidence, the difference of the value for which the goods were
taken in the discounting, and the price for which they were sold
by the party taking them, is so great as to make it apparent that

they were taken only as a cover for usury {Pratt v. Willey, 1 .Esp.
If. P. 0., 40; Bich v. Topping, per Lord Kenyan, ii., 176).
In the State of Mississippi, the taking of more than eight per

cent interest on any contract fOr the payment of money, founded
on any bargain, sale or loan of merchandise, goods and chattels,
lands and tenements, is made illegal; but the taking of ten per
cent for a bona fide loan of money is legal. promissory note A
was given for the price of a lot of land, sold fcfr cash, at six years,
with ten per cent interest ; and the court held that it was usurious
{Torry v. Qramt, 10 Smede & Ma/rsh. B., 89).
TRANSACTIONS SELD USURIOUS. 309
CHAPTEK XXIII.
TEANSAOTIONS HELD TO BE USmRIOUS OASES WHEEE STOCK 18 TBAKS-

FEEEED WAEEAl^TS OF A MTJITICIPAL OOEPOEATION DEPEECI- —
ATED BANK NOTES 0EETIIT0ATE8 OF TEUST AND DEPOSIT
EXCHANGE OF DEAFT8 AND OBLIGATIONS.
The temporary transfer of stock in the public funds, or in cor-

porate bodies, is an engine of usury frequently resorted to ; although
it, has been shown in a previous chapter that the mere loan of stock
is not usurious, nor the payment of the dividends in the mean-
'
time, even though they exceed the legal rate of interest, provided
always that the transaction be one of good faith, and not a device
qr cover for usury. There are frequent cases, however, where the
was in the form of a loan or sale of stocks or securities,
contraiCt
and nevertheless held to be usurious. The earliest case which is

found upon the subject is this The defendant. Dr. Battie,lent the
:
plaintiff several sums of money upon mortgage, and, the plaintiff

having occasion for more, the defendant advanced him £1,000 in
the following manner By selling him £1,000, South Sea annui-
:
ties, which at that time were undet par, and sold at a loss of £76
upon the whole, and, paying him the money for which they sold,
took 3, mortgage for the whole £1,000, at £5 per cent interest, with
covenant to reduce the interest to four per cent, if paid within
such a time, He afterward advanced the plaintiff £1,400 more in
thesame manner, by sale of so much South Sea annuities, which
were then Îso under par, and sold at the loss of £267 15^. upon
the whole, and took a mortgage for £1,400, at five per cent inte-
rest, with a power for Moore to reinstate the £1,400 at any time
,
within two years, which was done. A bill was brought by the
defendant to foreclose and Moore, in his answer, admitted the
;
mortgage, and submitted in general to pay what was due. The

master, in taking the account, considered those sums as £1,000
^nd £1,400, and computed interest upon them accordingly. The
plaintiff paid the principal, interest and costs, and then brought
his bill, inter alia, to be pa,id the several sums of £76 and £267
15s. and interest, insisting that he ought not to have been charged
with them in the account. The defendant pleaded the proceedings
under the decree in bar; and two questions were raised: 1st,
whether it was. usury; and, 2d, whether the court would relieve.
,
310 J^-^w OF ususr.
Sir Eobert Henley, Lord Keeper, said :

" As to the first, I am
clear of opinion it is a shift within the statute. The plaintiff had
.hut £924, instead of £1,000, in the one case, and £1,132 5s.,
instead of £1,400, in the other. He has paid as much interest as
is equal to £5 per cent for £1,000 and £1,400, which is more than
the statute allows, being more than £5 per money he
cent for the
received. Suppose stocks at £15 per cent ; if a person takes at
par, he pays £6 5s. per cent. The case of the £1,400 is not dis-
tinguishable from the other. Not so on the footing of the risk;
for defendant took interest for £1,400, though, in fact, the plaintiff
,
received but £1,132 5s." His lordship decreed- payment {Moore
V. Battie, Ami. B., 371).
Mr. Comyn, in commenting upon this case, remarks: "Now,
independent of any consideration of the power which was given
to the borrower of replacing the stock, and so of defeating the
excess of interest, it appears that the lender, in this case, was sui-
jeot to severe loss, whether the stock were replaced within two years
or not ; for if the stocks fall within two years, it might have been
replaced for lessmoney than it had been sold for. If they rose
after the two years had expired, the money paid to him would not
have enabled him to purchase as much stock as he originally had."
And if this be correct, he thinks it difficult to reconcile the case
with the cases of Tate v. WelUngs and Pike v. Ledwell, subse-
quently decided, and which are considered in a previous chapter
of this work. He intimates, therefore, that the case of Moore v.
Battle may be regarded as overruled by the later cases (fiom. on
TJsv/ry, 107, 112). And, although the doctrine of contingency is
carried to a considerable extent in the cases of Tate v. WeWmgs
and Pike v. Led/well, it is believed that the doctrine of those cases
is more in harmony with the tenor of modern decisions than that
of Moore v. BatUe. Certainly, in the latter ease the transaction

was, inform, a transfer of stocks; and there- seems to be no inti-
mation that it was proved to be a device to obtain usury, except,
so far as the fact that more than legal interest was actually received,'
tended to establish that position. And the rule is, that a simple
lonaflde transfer of stocks is not usurious, even though more than

legal interest may be thereby realized.
Another stock transaction was declared usurious by the English
courts in 1809, which may be noted. The case was this The defend- :
ant being indebted to the plaintiffs, his bankers, in nearly £30,000,

about £21,000 of which was secured by bonds, a considerable'
part of which was advanced by them when stocks were below fifty
pounds, agreed with them that they should place £25,000 to, his
credit in account, for which he was to purchase £50,000 stock,
then at fifty-one one-fourth, in their names, and account to them
for the dividends .upon such stock as from the last dividend day.
After which agreement, the plaintifis acting upon the basis of it,
iJiough the defendant never purchased the stock so agreed upon,
entered in their books the sum of £25,000 to the credit of the
defendant, and continued to honor his drafts from time to time,
crediting him also with other sums actually paid by him, and wrote
ofi" amount of his bonds to his credit, and delivered them up
the
to him. The Court of King's Bench held that this agreement to
repay the new credit of £25,000 by the purchase of stock as at
fifty pounds, when, in fact, it was more at the time the agreement
was made, though it had been less when a considerable part of the,
money was actually advanced upon his general credit, was usuri-
ous and void. It was decided, nevertheless, that the sum of
£25,000 credited under that agreement by the plaintiffs to the
defendant in his banking account was to be reckoned against them
upon balancing the account of debtor and creditor between them.
It seemed to be admitted on all sides that the agreement for the
purchase of the stock was illegal add invalid but it was contended
;
by the plaintiffs that the account should be taken between the par-
ties upon the real advances and payments which had taken place,
because the whole account, as it stood upon paper, was unreal that ;
an invalid agreement had been made upon the basis of a fictitious

advance, which, in truth, was not made. But the court held that the
£25,000 having been entered in the plaintiffs' books as an article of
credit to the defendant's account, and the defendant drew for it as
he wanted it, the credit could not be said to be fictitious and, ;
hence, although the agreement was usurious and void, the credit
must be allowed {Boldero v. Jackson, 11 Easfs B., 612).
In an early case in the old Supreme Court of the State of lêw
York, a transaction relating to the purchase of stock was declared
usurious and void. It was an action of debt on a bond dated Octo-
ber 20, 1808, conditioned to pay $1,08Y. The defendant pleaded
that it was corruptly agreed between the plaintiff and defendant
that the plaintiff should lend the defendant $687, to be repaid on
the 1st of November, 1811, and for such forbearance the defend
:
312 LAW OF uscmr.
ant should purchase of the plaintiff sixteen shares of turnpike

stock for $400, when, in truth and in fact, the shares were worth
only $250 ; and that, pursuant to sneh corrupt agreement, he did
purchase the said shares, and that the defendant executed thehond
as well for the $687 as for the $400 to be paid for the shares and
the forbearance of the $68Y. The plaintiff demurred to the plea,
and the defendant joined in the demurrer. The court held the
bond to be usurious and toid.
Van Ness, J., delivered the opinion of the court, and said
" Upon this statement of facta there canbe no doubt that the bond
is void. The cash lent to the defendant wasupon the ground that
he should pay double thei real value of the stock, and interest is
reserved upon the whole apiount. Whether this was a hona fiie
sale of the stock, or colorable only, is a f^ct which the plaintiff may
put in issue if he pleases, and it is for the jury to decide upon it.
If they find that it was a fair sale, then the defendant may be
liable to psy the whole amount of the plaintiff's demand. But

ifj on the contr^jry, they shall be of the opinion that the transfer
of the stock was a mere device to obtain an extravagant and

unlawful interest, the bond is usurious, and, consequently, void "
{Rose V. Dickson, 7 Jahlns. M., 196-198 ; cmd vide Seymour v.
Strong, 4 MUVs B., 255).
To the same purport was an early case decided by the courts in
the State of Virginia, wherein a contract to lend a portion of the
money wanted by the borrower, on condition that he would receive
stock at a price much above the market value, to make up the
deficiency, was held to be usurious {SiriJMmg. v. B(vnk, 5 Rand.
B., 132).
And in another case in the same State, where a proposition was
made to a bank to purchase its stock at par, when its actual market
value was much upon the consideration of which the bank
less,
was to loan nloney to the purchaser^ and the purchaser's notes

were made and discounted in pursuance of the agreement it was ;
held by the court that the sale and the loan were one entire con-
tract, inseparably connected with each other, and that the transac-
tion was usurious ( Valley Bamk v. Stribiling; 7 Zeifh's B., 26).

In the State of Mississippi, a party made an arrangement by
which he loaned to another certain stock and bank notes, which
were below par, for which he took the borrower's note for the
nominq,l value of the stock and notes ; and the court held that the
TBANSAOTIONS MMLD USURIOUS. 313
contract was . usurious, without regard to the use the borrower
might make of the 'thing borrowed. The court, however, declared
that, where the legal rate of intereet upon a loan of stock is eight
per cent upon its actual value, a loan at the rate of six per cent on its
nominal value is not necessarily usurious. Whether usurious or
not, will depend on whether this was a greater rate of interest
than eight per cent (the legal rata) on the actual value. It was,
therefore, held to be error to instruct the jury in such case that the
loan was not usurious, unless they believed the loan of stock was
resorted to, to cover a usurious contract. The doctrine was also
properly laid down in the case, that, in respect to usury, contracts
are to be governed by the laws existing at the time when they
wei:e made {Archer Pv,tnam, 12 Smede (& Marsh. R., 286).
v.
In the State of South Carolina, an incorporated building and

loan association advanced, in conforniity to the provisions of its
constitution, to one of its members, who owned ten shares of its
capital stock, $2^000 at a premium of thirty-five per cent, equal to

$700, paid him amount advanced less the pre-
$1,300, being the
mium, and took by a mortgage of real estate and
his bond, secured
an assignment of his shares of the stock, for the amount advanced
(|2,000), payable, with interest at the rate of six per cent per
annum, in monthly instaUmients of twenty dollars each. The
Court of Chancery held the contract to be usurious {Columbia,
ek:, Association v. Bellvnger, 12 Sich. Eg.. B., 124).
In the State of Virginia, in a case where a bond and deed of
were executed for a loan of money, the amount of which was
trust
made up in part of a pre-existing valid debt, and in part of stocks
passed at a price considerably above the market value, the court
held the transaction to be usurious. It was declared, however,
that, though the bond and deed of trust were usurious and void,
yet as a part of the consideration thereof was a pre-existing, valid
debt, a court of equity would not compel the obligor to establish
his claim at law before proceeding to enforce his security and ;
upon a bill framed for compelling the obligor to establish his debt
at law, the court, refusing that relief, held that relief would be
granted upon equitable principles {Bank of Washington v. Arthv/r,
3 Gratt. R., 173).
The Supreme Court of the State of Iowa hel^, in a case which
came before the court, that where a municipal corporation issues
warrants in payment of a judgment, at the rate of one dollar in
40
314 JOAW OF USURY,
warrauts for every seventy-five cents due on the judgment, such

warrants were usurious and void {Glwrk v. Dea Moines, 19 Iowa
R., 199).
In the State of Mississippi, where a bank loaned the notes of
other banks, which circulated in payment of debts, but were in
fact from twenty to twenty-five per cent below par, the court held
that tlie contract was usurious, and that the bank was only entitled
to recover the specie value of the notes at the time they were lent
without interest, in accordance with the provisions of the statute
of the State relating to usury. And it was further held that the
use which the borrower makes of the money cannot change the
result, and is not a proper subject of inquiry {BurdMsmit v. Grnn-
rnerdal Bank of JTatchez, 8 Smede di Ma/rsh. E., 533 ami vide ;
Cook V. Bank of Lexington, lb., 543 Orcmd Gulf Bank v.

;
Archer, lb., 151).
Cases in which certificates of trust and certificates of deposit

issued by moneyed and loaned upon interest above
corporations,
the legal rate, have been decided to be usurious. For example, in
the State of New York, one C. H. CarroU proposed to the Farmers'
Loan and Trust Company to create a trust with the company of
certain land in the county of Livingston and other property in the
city of Rochester, the company to advance him $75,000 in their
certificates of trust running twenty years at an interest of five per
cent. Before any arrangement between the parties was completed,'

Carroll submitted a further proposition "to borrow from the
Farmers' Loan and Trust Company $95,000, and to convey in
trust, to secure the same," real estate valued at $190,853.90. A
few days afterward Carroll proposed to divide the trust, so as to
make a trust in his own name of certain property estimated at
$103,794.40, and to receive thereon, in the company's certificates
of trust, $52,000, and to create a trust, as executor of Charles Oar-

roll, of other property estimated at $87,059.50, and to receive
thereon $43,000 in similar certificates. The company thereupon
consented to the creation of two distinct trusts, as proposed, by Car-
roll. Accordingly Carroll, by a deed absolute on its face, expressing
the consideration of $52,000, and containing the usual covenants,
conveyed the land in the county of Livingston to the company in
fee. On the same day the deed was given the parties entered into
and executed certain articles of agreement and declaration of trust,
whereby the company covenanted, promised and agreed that they
would, in consideration of such trust, igsue and deliver to Carroll
their certificates of trust to the amount of $52,000, payable to him
or his assigns, and to bear an interest of five per cent, redeemable
in twenty years. And it was agreed that Carroll should apply
such an amount of the certificates as should be required, or of the
proceeds thereof, in payment and liquidation of the liens and
incumbrances on the land. The company covenanted to make
sales, and to grant, execute and deliver all conveyances of the said
real estate to purchasers, whenever authorized and requested by

Carroll, and to receive the purchase-moneys. It was also stipu-
lated that all securities and conveyances, leases and sales, to be
made and entered into, should be made to and with the company
only, who were to receive all moneys payable on such securities,
etc., and to account for the same to Carroll. Carroll agreed to
pay and allow to the company interest at the rate of seven per cent
for the said sum of $52,000 ; the difference between the interest
agreed to be paid by the company on
their said certificates (5 per
cent) and the interest agreed to be paid by Carroll, viz., two per
cent, being declared and agreed to be the only compensation,
allowance or commission to the company for undertaking and
executing the trust. It was also provided that whenever the com-
pany should have raised the said sum of $52,000, with interest,
they should come to an account and settlement with Carroll of
the said trusts, and pay over the balance due to him, if any. And
Carroll covenanted that in case the trust property and securities
should be insufficient to pay the company the $52,000 and interest,
he would pay such deficiency, and that he would indemnify the
company from all loss. There were other stipulations in the con-
tract, but these here given are sufficient to present the question of
usury.
Similar instruments, were executed by the parties in respect to
the trust of $43,000 to Carroll as executor ; and thereupon the
company issued to Carroll ninety-five certificates of trust under the
seal of the company, for $1,000 each, fifty-two of which were to
CarroU in his own right, and forty-three to him Each
as executor.
certificate certified that Carroll h&.d deposited with the company
$1,000 in trust for twenty years, which sum the company agreed
to pay to Carroll, or his assigns, with interest at the rate of five
per cent, payable semi-annually. At the time the certificates of
;
316 LAW OF USURY.
trust were issued by the company they were worth, in the market,
less than their nominal value.
On a bill filed to enforce the instruments on the part of Carroll,
the defense of usury, among others, was interposed, and it was
contended by defendant's counsel that the transaction was usurious,
whether it be called a loan on mortgage, or a trust, or power in
trust,and that it could not be enforced for any purpose or to any

extent (1) In the difference of two per cent of interest between
:
the certificates loaned and the securities received; (2) In the loan
of securities that were worth much less than their nominal value.
On the contrary, the counsel for the plaintiffs contended that there
was no usury in the transaction. The case was very ably argued
on both sides, before the Supreme Court
at General Term, where
itwas held that the transaction could not be enforced. 1st.
Because the company did not possess the power of making loans
and, 2d. Because the loan, and all the securities relating to it,i
were illegal and void, as being in violation of the usury laws; that
the transaction was usurious upon its face, in making a' difference
of two per cent between the interest to be paid by the company
upon their certificates, and that agreed to be paid by Carroll. In
other words, that it was, per se, usurious, and the plaintiffs'' bill
was dismissed, with costs.
Wells, J., delivered the opinion of the court, and said :

" The
nominal value of the certificates, at the time they were.issued and
delivered to Carroll, was not equal to the amount which Carroll
was to pay for them by just the difference in the interest between
the two. * * * I think the weight of evidence is decidedly
that, at the time the loan was made, the certificates were not worth
in market their par value. A number of witnesses were examined
on this point, and most of them testify, in substance, that at the
time this loan was effected they were at a discount of at least
twelve and a half per cent, and not a witness, as I believe, shows
them to have been of their par value at any time during the spring
of 1838, when the negotiations were consummated. That the
depreciation might have been owing, in part or in whole, to the
pressure of the money market at the times to which the witnesses
refer, does not, in my judgment, alter the case. Carroll bound
himself to return their nominal amount in money, with lawful
interest. It turned out that they were sold by Carroll, in order to
raise money, at a ruinous sacrifice, * * * I am, therefore, of
TRANSACTIONS HELD USUBIOUS. 817
the opinion that the holders of the certificates are not entitled to
any decree in their favor. If I am right in holding the transaction
a loan, and that it is affected with usury, then no one is entitled to
any benefit from anything connected with or growing out of it.
In other words, the court will not aid a party who has been con-
nected with it, or who stands charged with notice. Poti&r est con-
ditio possidentis" {The Fa/rmer^ Loan and Trust Oompawy v.
'Gaff'rdl, 5 Bath. R., 613, 657, 659, 661). The doctrine of the case,
expressed in the fewest words possible, is, that a loan of trust cer-
tific£|,tes of deposits, worth in market much less than par, upon an
engagement to repay the par amount with interest, is usurious.
And that if, for a loan of A.'s note at five per cent, he takes secu-
rity from B. to repay the amount of it with seven per cent interest
at the time become due, it is usury per se.
it shall
A similar case in some respects to that of the Farmers' Loan

and Trust Company v. Carroll, subsequently came before the
Court of Appeals of the State of New York and was similarly
disposed of. The case was this; The plaintiff, an incorporated
insurance and trust company, took from the defendant a bond and
mortgage upon real estate to secure the payment of $3,000, with'
interest semi-annually, for which the company gave the defendant
twenty-five per cent in cash and seventy-five per cent in the com-
pany's certificate of deposit, payable in twenty years, with interest
at four and. a half per cent.
The plaintiffs filed their bill in the late Court of Chancery of
the State to foreclose the mortgage, and the defense of usury was
interposed. was heard upon pleadings and proof at a
The case
General Term of the Supreme Court, where a decree was made
dismissing the bill of complaint and then the plaintiffs appealed
;
to the Court of Appeals, where the judgment of the Supreme
Court was affirmed.

Welles, J., delivered the opinion of the court, and said : "Assum-
ing the right Of the company to loan their certificates of deposit,
and the transaction a loan, it was illegal and void for usury. The
bond and mortgage bore interest at seven per cent and the certifi-
cate only four and a half per cent, making a difference in favor of
the company of two and a half per cent or $57.25 per year on the
amount of the certificate. It is not doubted that if the certificate
were actually worth in money its nominal amount at the time it was
loaned, potwithstanding it bore a rate of interest less than the respoad-
318 iÂw OF usnsr.
ents agreed to pay for the forbearance of the amount, the transac-
tion would have been exempt from the imputation of usury. But
this was not attempted to be proved. On the contrary, there is evi-
dence in the case, which is uncontradicted, showing that the certifi-
cate was not intrinsically worth and would not sell in the market for
its nominal value, which was known to the appellants. It is proved
that they were in the habit of purchasing similar certificates issued

by themselves at a discount. If they wê loaned as money at
their nominal amount, according to a well-settled principle it was
usury. * * *
There can be no doubt, from the evidence, that
the bond and mortgage were given by the respondents and intended
by them as security for a loan, nor 'that "they received the proceeds
thereof as a loan from the appellant. This was scarcely denied
upon the argument. It was, in point of fact, a loan and nothing
else " {]!few York Life Insuromce cmd Trust Company v. Beebe,
1 1T. Y. R., 364, 367, 368).

And where A., for the purpose of obtaining funds, proposed to
B., a banker at Washington, to sell him three drafts, each for
$6,666.66, on the post-oflSce department of "Washington, and made
•payable, one at six, one at nine and one at twelve months from
date,and to take therefor $16,000, the drafts to be made payable
to the order of C, and renewed by his indorsement and the
hypothecation of bank stock, and B. accepted the proposal, advanced
themoney and received the draft and securities, it was held by the
Supreme Court of Ohio that the transaction was prima faeie a
loan and not a sale ; and by the law of Maryland, in force at
Washington, such contract is utterly void for usury. And it was
said that, in determining the character of contracts of this kind, a
distinction is well taken between business and accommodation
paper ; that a bill or note, valid in .its inception and furnishing a
good cause of action as between the original parties to it, may be

sold as a marketable commodity at such rate of discount as the
parties may think proper, without subjecting the purchaser to the
imputation of usury ; but that it is otherwise where the bill or
note claimed to have been sold is mere accommodation paper,

void in its inception, fictitious in its character as between the
original parties, and on which no action could be maintained till
after its transfer to a third party and that collateral securities,
;
taken on a contract void for usury, are void in the hands of the
usurer {Corcorom v. Powers, 6 Ohio If. 8. JS., 19).
TRANSACTIONS BELD USURIOTTS. 319
The principles involved in these cases are the same as those
which govern cases of the exchange of obligations ; and it has been
shown in a previous chapter that parties may exchange with each
other their personal obligations, within certain rules, without sub-
jecting the transaction to the charge of usury. But there are cases
of this nature which have been held by the courts to be usurious,
and rules have been laid down by which the question may be deter-
mined.
A very important case may be referred to upon this point, which
was originally decided by the Sapreme Court of the State of New
York. The case was this : Certain parties having contracted with
the Holland Land Company for the purchase of a large tract of
land belonging to the latter, and being unable to make their pay-
ments upon the contract, they applied through Schermerhorn, one
of their number, to several moneyed corporations for money.
Being unable to obtain it elsewhere, Schermerhorn applied to the
American Life Insurance and Trust Company for means or aid to
enable the associates to fulfill their contract. Schermerhorn received
encouragement that, on perfecting arrangements to establish suita-
ble correspondents in London, the company would be able to take
a deposit of the bonds agreed to be purchased, and advance, by
their certificates or bonds, the funds necessary to pay for it. In
the meantime an arrangement was made by which bonds or certifi-
cates were issued by the Trust Company to Schermerhorn and his
associates for £12,000 sterliag, for the security of which a bond
was given, made by Schermerhorn and his associates, payable in a
short time. It was known to both parties that those certificates
could not be immediately converted into money at par, but that
the amount of money required could be raised on them by hypo-
thecating them and they were hypothecated to Nicholas Biddle
;
for that purpose. In the course of the same yeiar and the next, an
arrangement was made between the parties for a further advance
of certificates by the American Life Insurance and Trust Company
to an amount suifieient to enable the associates to pay off their
debt to the Holland Land Company and entitle themselves to a
conveyance of the lands, which were to be conveyed to other par-
ties in trust to pay the Trust Company its advances, with interest
and charges, and then to convey to the associates. The certificates

were to bear an interest of five per cent, and be payable in London
in pounds sterling, in twenty years from date, with interest payable
;
320 LAW OF USUBt.
there, semi-annually. In July, 1838, the Trust Company issued to

the associates further certificates, to the nominal amount of £36,T00
which, with those before issued, amounted to the sum of £47,700.
They were estimated and paid to Schermerhom at a premium of
six per cent upon $4.44 to the pound sterling, which was about
$4.Yl for the pound sterling, and were all, pursuant to a previous
arrangement known to the officers of the Trust Company, sold by
the associates to Biddle at $4.44 to the pound sterling, and the
proceeds, or sufficient for that purpose, were paid to the Holland
Land Company upon the contract. The associates had previously
agreed upon an equitable surrender and partition of the lands, etc.,
among themselves, according to their respective interests therein

and their respective portions of the debt due to the Trust Com-
pany were ailso liquidated and settled, so that each one owed his
portion of the debt in severalty. Each of the associates then, for
the purpose of securing the debt due to the Trust Company, gave
his individual bond to the Trust Company for his portion of such
debt. The plaintiff, who was one of the associates, gave his bond,
dated July 10, 1838, conditioned for the payment of $151,933.44:
in ten yeaffl, with interest at the rate of seven per cent per annum,
payable semi-annuaJlly. And further to secure the Trust Company,
the associates directed the Holland Land Company to convey the
land directly and absolutely to the other parties before referred to,
in trust, to be held and disposed of, first for the payment to the Trust
Company of the amounts due on the bonds of the associates.
Duer, Kobinson and Seward, the other parties referred to, then
executed a declaration of the trusts upon which they held the land,
specifying the amount of each associate's part of the debt, as men-
tioned in his bond, and his individual share of the property, and
contaiining covenants to convey his share of the property to the
owner, when his share of the debt should be paid. Many other ,
facts were in the case, but these are sufficient to present the ques-
tion of usury, which was raised.
Schermerhorn filed his bill in equity aga;inst the American Life
Insurance and Trust Company and others, for the purpose of set-
ting aside the bond given by him to the Trust Company, and of
having the conveyance made by the Holland Land Company to
Duer and others declared void, on the ground that the considera-
tion of such bond and conveyance was usurious, and.the transactions
on which they were founded unauthorized and illegal.
;;

The coart held that the contract between the associates and the
American Life Insurance and Trust Company wa,s, on the part of
the Trust Company, usurious and void as against, the plaintiff; that-
the bond given by the plaintiff to the Trust Company was void as
against the plaintiff, and it was ordered to be given up and canceled
that the trust claimed and attempted to be raised in favor of the
Trust Company upon the deed from the Holland Land Company to
Dner and others was void, and the trustees were directed to con-
vey to the plaintiff his share of the property, and to account to
him for the money or property received by them under the trust.
Mr. Justice Mullett, in a very able and exhaustive opinion,
reviewed the authorities upon the subject, and gave the reasons by
which the court came to the unanimous conclusion that the trans-
action was usurious, and made the disposition they did of the case
{Sehermerhorn v. The Americcm Life Inswrance and Trust Com-
pany, 14 Ba/rh. B., 131).
The defendants took the last mentioned ease to the Cotirt of
Appeals of the State, where the judgment of the Supreme Court,
so far as the transaction was held
to be usurious, was affirmed
but the judgment was modified in some particulars, not pertinent
to the inquiry here. The transaction was regarded by the Court
of Appeals as ^bstantially an exchange of obligations, and the
doctrine enunciated was this " When on an application for the
:
loan of money, the borrower in lieu thereof and in exchange for

bis own obligation receives the negotiable obligations of the lender
for the amount, which the parties intend shall be and which are
used by the borrower to money, the transaction is a loan
raise the
within the usury laws. And by the obligations exchanged the
if
amount ultimately to be paid by the borrower is greater than that

tobe paid by the lender, the transaction is usurious ; otherwise, if
the obligation of the lender is at a premium and the amount
agreed to be paid to him is not greater than its cash value in the
market with legal interest thereon."
Selden, J., in his opinion, said :
"
The true rule on this subject
I hold to That whenever the question of usury arises, no
be this :
valne can be put upon the promises or obligations of either party

different from that which they import upon their face. This is
usually conceded in respect to the obligations of the borrower.
* * * It may be said that, admitting a mere exchange of obli-
gations not to be a sale, neither is it a loan ; and hence that it is
41
322 LAW OF USURY.
entirely without the statute of usury, unless brought within it by

extrinsic evidence that an evasion of the statute was intended. It
is true that literally the transaction is neither a sale nor a loan,

but an exchange. I apprehend, however, that, legally, in refer-
ence to the question of usury, it must be regarded as one or tie

other. No other distinction has ever been applied to such transac-
tions by the courts. * * * Any difference in the nominal
amount of the securities exchanged has been repeatedly held in
England to constitute usury ê?- se. * * * It makes no dif-
ference whether the discrepancy is in the principal or the interest.
If appears that, at the end of all the payments, the lender will
it
have received more than his principal with lawful interest, the
contract is usurions. * * * I consider these cases as resting upon
a firm basis of principle, and as tending to establish the doctrine
i
contended for here, that whenever the question of usury arises
between the parties to any transaction, the obligations of the parties

themselves cannot be estimated otherwise than at their nominal
amount, and that consequently upon every exchange of note or
other obligation the question of usury becomes one of mere com-
pntation. * * * I deem the conclusion inevitable, therefore,
that the transaction was usurious."
Denio, 0. J., in his opinion, said :
" Without going over the evi-
dence in this case, which, however, has been carefully examined, I
am quite satisfied that the transaction between the, associates and

the Life and Trust Company was a loan by the latter to the
former. The associates wanted money or securities which would
immediately produce money. They did not desire to purchase,
exchange or to procure an investment. The company had not,
indeed, any ready money to loan, but they had credit, which enabled
money be raised on their engagements, and they consented to
to
issue such engagements, upon being secured, by means of the
difference of interest, considerably more than the amount which
that engagement would require them to pay. Their credit, how-
ever, was not so good as that their paper of this description would
command a premium in the market. On the contrary, it was con-
siderably below par. They could not, therefore, loan such paper
formore than its real value, and that value must be measured, as has
already been stated, by the amount of money which it would oblige
them to pay. I am, therefore, of opinion that the transaction of
July, 1838, was void for usury; and if Schermerhorn could be
:
considered as a borrower, he would be entitled to relief against

the securities executed to effect that arrangement, without the.
performance of any condition."
All the judges except Mitchell, J., who was of the opinion that
the transaction was not usurious, and Comstoct, J., who took no
part in the decision, concurred in the opinions of Selden, J., and
Denio, 0. J. {Schermerhorn v. Tdkncm, 14 JST. Y. E., 93, 118,
119, 121, 123, 138, 143 ; and vide Dunham v. Qould, 16 Johns.
JR., 367).
An early case, decided by the Supreme Court of the United
States, may also be referred to on this point. The case was this
Corcoran & Company discounted their notes with the Farmers'
*
and Mechanics' Bank of Georgetown, at thirty days ; and, in lieu
of money, they stipulated to take the post notes of the bank, pay-
able at a future day, without interest, which ôs^ notes were at a
discount of one and one-half per cent. in the market at the time of
the transaction. The court held that the transaction was usurious,
and further, that the indorsement of a promissory note of a stran-
ger to the transaction, which was passed to the bank as a collateral
security for the usurious loan, although the note was not
itself
tainted with the usury, yet the indorsement was Toid, and passed
no property to the bank in the note
and that the subsequent pay-
;
ment of the which the security was given, and

original note, for
the repayment of the sum received as usury, would not give
legality to the transaction {Gaitten v. The Fa/rmers' and MechoMics'
Banh of Georgetown, 1 Peters' S., 44 ; am,d vide Bomk of the
United States v. Owens, 2 ih., 527).
In these cases, then, the rule would seem to be, that where notes
or other obligations of the parties in equal amounts are exchanged,
one is equal in value to the other, and there can be no usury in
the transaction ; but when either party makes an advantage in the
arrangement, over and above legal interest, then the ease is one of
usury, if the transaction was designed as, or connected with, a
loan of money, or is in point of fact a loan.
.
324 LAW OF UStfRT.
CHAPTER XXIV.
TEANSAOTIONS HELD TO BE USUEIOtTS CASES WHEEE SOMETHIHO
BESIDES INTEREST IS PAH) FOE THE LOAN EXTEA SUM PAID FOE
BEOKEEAGE —
EXTEA SUM PAID AS COMMISSION EXTEA Srai PAID
AS EXCHANGE.
It has been well said that it signifies not in what shape the profit
upon the money lent is to accrue ; it is sufficient that such profit
should exceed the legal rate, in order to bring the transactioE
within the statute. A device often resorted to for the purpose of
evading the statute is to let the money at legal interest, upon con-
*dition, however, that the borrower shall take something with the.
money, at a given price, when the real value of the thing taken is
much less than the price allowed.

Several cases of this character are collected by Mr. Comynin his
little work on usury. Where a bankrupt, 'having borrowed a sum
of money of the defendant for one quarter of a year, had agreed;
to give legal interest to the defendant for every£100 and having ;
deposited some silk with him as a security, agreed further to give,

him an additional sum, as for the use of his wa/rehouse ; the ques-
tion was, whether the interest was usurious, and the jury having
found that it was not usury. Lord Holt, Chief Justice, thought that
the verdict was wrong {Le Blame v. Harrison, Holies R., T06).
So where an information stated that the defendant, by way of
corrupt bargain made between him and one Edward Hayns, received
of John Hayns, the administrator of the said Edward, £65 viz., ;
for the use and occupation of a hall in Clerkenwell, in the county

of Middlesex, from Midsummer (14 Jac. I) to Michaelmas (14 Jap.
I), £15,'and for the forbearance of £1,000 from the 16th of April,
,
1614, for six months then following, £50 ; whereas, the said house
was really worth but £20 per annum, the jury found for the plain-
tiff {Bedo Sanderson, Cro. Jac., 440).
v.
And in like manner, an agreement, by the borrower to allow the

lender a salary as a clerk in his brewery, which would yield him
more than legal interest for the use of his money, it not being
intended that he should perform any services, was admitted to be
corrupt and Ulegal {Wright v. Wheeler, 1 Camp. E., 165, n; ani
vide Com. on Uswry, 117, 118).
A similar doctrine was held in a recent case which was decided
;
TBANSACTiONS MBLD USURIOUS. 325

Dy the Supretnte Court of the State of Yermont. The directors
of an incorporated eompaily made an agreement with a persdn that
if he would take the office of treasurer and provide money to carry
on the business of the company, he should -be paid $300 a year atid
one per cent a month for money advanced, which was accepted and
took efifect. The court hdd thfe contract to be usurious as to the
payment for money advanced, but that the other part of the cofl-
was not invalidated
tTact (
Waite y. Wiridham,, etc., Gompcmy, 37
Yt. B., 608).
And in another case, decided by the same court,, wherein it
appeared that A. loaned to B. a certain sum, and, as a part of the

same transaction, B. purchased a mill of A., giving much more
than it was ftôrth, of which fact both parties were aware, though
nothing was said as to the real value of the mill, the court held that
the loan was usurious {Low v. Prioha/rd, 36 Vt. R., 183).
In the State of Kentucky, an individual loaned to aiiother a sum
of itloney to be paid in one year, under an agreettient that the
lender should have the use of a negro belonging to the borrower,
iMtead of interest, although the hire of the negro êatly exceeded
the legal interest of the money The lender took from the
loaned.
borrower an absolute bill him a wri-
of sale of the negro, .but gave
l5ikg specifying that if he returned the money in one year he inight
redeem the negro. The court held the contract to be usurious

had kept the negro for some years, it was ordered
and, as the lender
and adjudged that he should account for the hire of the slave, to
be set off against the nioney loaned, and interest {McJennes v.
Hdri, 4 Bihi's M., 327 ; (Mid vide Riaha/rdsorH s Administrators
V. Brown, 3 ib., 207).
And in the State of Louisiana, where the use of slaves was given
In lieu of interest for money loaned, and there was a great dispro-
portion between the value of the services of the slaves and the
was held that the presumption was
rate Of conventional interest, it
that the contract was intended to secure usurious interest, and was,
therefore, within the statute against usury {Succession of Hick-
inan, 13 La. Annual B., 364 ; dnd vide Galloway v. Logan, 4
La., B. 8., 167).
Jn the State of New Jersey, where it was agreed that A. shoiild
lend B. $2,000, on interest^ and that B., for the loan, should give
A., before receiving all the money, a wagon of the value of $100,
over and above the legal interest, and that, to secure the repay-
'
326 LAW OF DSVRT.
ment of the $2,000, with legal interest, B. should give A. a bond

and mortgage, and the husiness was closed up accordingly, the
Court of Chancery held that the transaction was usurious {Cunr
mins V. Wire, 2 Hoist.. Gh. B., 73).
In the State of Virginia, where A. assigned to B. a bond exe-
cuted by C, who was in doubtful circumstances, for considerably
less than was due on it, and A., at the same time, executed a. deed
of trust on property, with condition that if the bond, with its

interest, was not paid in twelve months, the trustee should sell and
pay the full amount then due on the bond to B., it was held that
the transaction was usurious {Bell v. Calhoun, 8 GratU B., 22).
In a case decided by the Superior Court of the city of New
York, where it was proved that a bank discounted a note at the
full legal rate of interest for the time it had to run, and required
the indorser to give them his check for $200, in pursuance of an

agreement to that effect, on which it was discounted, and the next
day charged this check against this credit given on this discount,
the jury found the transaction usurious, and the court, at General
Term, sustained the verdict. The court held that 'charging the
check in account showed that the indorser was to have the use of
only $300, less the discount on $500, and was to pay therefor inte-
rest on $500 and that the transaction was usurious per se. Upon
;
such facts, it was declared that it would be proper for the court to
instruct the jury to find for the defendant.
Woodruff, J., delivered the opinion of the court, -and said :
" That
a corrupt agreement to lend $300 and charge the borrower the

interest on $500, is usurious, we think clear ; and the delivery to
the lender of a promissory note, in execution of such an agreement,
passes no title. * * * It is obvious that the fact, proved
without contradiction, that the bank charged Pearce the $200 check
at .once, and so took the money, to that extent, from his account,
^nd had it in hand to use for its own purposes without restriction,
pretty effectually contradicted such an explanation of the trans-
action. And, besides, we are not here to be regarded as bonceding
that any such explanation was warranted by the evidence, or could
affect the legal character of the transaction, so long as Pearce was
only allowed the use of $297.12, and the $200 was, in fact, in the
possession and at the use of the bank, and the check protected
them in that possession and use." {Butterworth v. Pea/roe, 8 Bosw.
B., 671, 675, 677.)
;
TRANSACTIONS BELT) VSORIOUS. 327

In the old Supreme Court of the State of New Tork, a trans-
action was held to be usurious, where it appeared that the maker
of two promissory notes which were just due, in order to obtain a
renewal for three months, agreed with the holder to give him a
new note for the aggregate amount of principal, and pay the dis-
count upon it, and the back interest, and, m
addiUon^ to transfer
to the holder, at pa/r, drafts on New Tork and Albany worth
three-fowrths of one per cent prermum, to an amount equal to the
debt, the court were unanimous in the opinion that the new
note given pursuant to the arrangement was void for usury, and so
declared {The Seneca County BamJc v. Schermerhom, 1 Den. R.,
133).
The present Supreme Court of the State of New York has held
that an agreement by borrowers to pay the holder one-third of the
profits of their business, as copartners, in addition to the legal
interest, for the use of the money loaned, was usurious and void
and it was declared and decided that a promissory note, given by
the borrower in pursuance of such an agreement, being void, fur-
nished no consideration for a note given by a third party to the
lender, on the purchase of the original note by him {Sweet v.
Spence, 35 Ba/rb. M., 44).
And in a case in the late Court of Chancery of the State of New
York, where, on a loan of money, the principal and interest were
secured by a pledge of stocks, and the contract stipulated that the
lender might keep the stock in payment, at its then market value,
if he chose, without accounting for a rise in value or the dividends,
the court held that the transaction was usurious, and laid down the
rule, that whenever the lender stipulates, even for the chance of an
advantage beyond the legal interest, the contract is usurious, if he
is entitled by the contract torepayment of the money lent, with

the legal interest, at all events {Glevelcmd v. Loder, 7 Pa/ige's
B., 557).
where a creditor traveled, of his own accord, to his
So, also,
debtor's residence, and there agreed to give a further credit, upon
the debt being secured with interest by a mortgage, and upon the
debtor paying the creditor's traveling expenses from his to the
debtor's residence, and the mortgage was executed, including a sum
for such expenses, the same court held that the mortgage was usuri-
ous {WilUams v. Hvrnn, 7 Pmgis R., 581; hut vide Harger
V. MbCuUough;2 DertJufs B., 119). ^
:
328 I'AW OF USURY.
A case of similar import was decided by the old Supreme Court

of the State of ]S"ew York, and held to be usurious. The %cta
were thpse Dutcher having lent to Jackson $250, the latter
:
brought to him a no);^ foy %^Q^, drawn by one Holdridge, pay^blp

to Jackson, ii^dorsed by him and a firna of livery-stable keepers
an(4 desired Dutcher tp procure the same to be discoimted. Dutcher
took the note to a bank, and was there told if he would indorse it.
it would be discpuntfsd he accordingly indorsed it, and receive^
;
the avails, which he applied by appropria1;ing $250 to refund him- ,
self for' the money lent Jackson, thirty dollars for his indorsement
and thp trouble he had in the piatter, and the residue he paid to
Jackson. His own account of the affair was " I took out $250
:
^^hich belonged tp rpp ; then I took ^hirty dollars for my trouble

apd for indprîng ; I dp not indprse for nothing." And, again
" I told Jackson I charged ten dollars for going to Norton (the
president of the bank) to get the note discounted, ten dollars
fpr having usedmy name upon the note, a,nd ten dollars
for the bother I had ab.out the $250 and he took the baknce con-
;
tentedly." Butcher tpok up the note from the l»iik, then trans-
ferred it to the plaintiff, who brought suit upon it, ai^d the defense
of usury was interposed. The question was submitted to the jury,
and a verdict was found for the plaintiff. The defendant moved
the court in ba-nc for a new trial, an(J it was granted. The
court held th^t, as between Dutcher and Jackson the transactioEi
was usurious as a question of law, and because the jury were not
told so by the judge a new tria,l was granted {Steele v. Whipple,
21 Wend. B., 103).
.
I^ order to arriye at the cpnclusion the court did in this case,

they had ip find that Dutcher was, in fact, the lender of the
n^pney, a;^d perhaps the evidence clearly showed that he was but, ;
it has bepn well said of the case, that it

" stands near the line
which divides two well settled classes of cases, one adjudging a
trapsactiojo, to be usurious, jje/* s^, and the other that it is not, but
ô fraught with, suspicions of usury, in disguise and in. intent, that
a jury may find it."

The same principle governs in those, cases where an extra sum
is tp be paid ôr brokerage as compensation to an agent. It is
a,dmitted that w;here a broker or agent advaiices. money for hia
principal he ma,y lawfully take an extra sum or allowance for hia

trouble and attention, in addition to the legal interest on the money
advanced. Cases of this character, which have been upheld by
the courts, have been referred to in a previous chapter. It seems
to be the rule in these cases, that unless the jury find ,that the
commigsion was a cover for usury, the court cannot intend that it
was so, if it appears that there was really any substantial trouble
upon which a compensation might be claimed. For, according to
the language of Lord EUenborough, the court has no scales nice
enough to balance the trouble imposed upon the party and with- ;
out some proof to the contrary, the compensation must be taken

to be a fair one. All commissions, where a loan of money exists,
must be ascribed to and considered as an excess beyond legal

interest, unless as far as it ip aseribable to trouble and expense Jona
^de incurred in the course of the business transacted by the persons

to whom such commission is paid ; but whether anything and how
much is justly aseribable to this latter account, is always a question
for the jury {Palpier v. Bake/f, X Maule & Selw. R., 56 ; and vide
Ciisfairs V. iStein, 4 ib., 192),
But cases have ofteî been before the courts, which were, in form,
transactions of commission and compensation for trouble, yet never-
theless found to be colorable or excessive, and declared usurious.
It was held by Lor4 Tenterden, in a well considered English case,
tlji^t where the lender stipulates with the borrower that the latter
shall pay a commission to the lender's agent, it is usurious,
although the lender himiSeJf retains nothing but the legal dis-
count {M^.o6 V. SmvfnonSy 1 Moodiy. & MoXkMs R., 121).
Jt haiS been held by the Supreme Court of Pennsylvania that
where it appeared that the holders of certain judgments, by assign-
mept, were to receive, as commission merchants, from the defend-
ants, who were iron masters, iron for sale on commission, that
they were entitled to interest upon the judgments and to commis-
sions on and guaiânties of paper received, but not to an addi-
sailes
tional commission of two and one-half per cent on advances that ;
the charge of additional conxmi^sions on advancements was usurious,

and could not be enforced at law, either upon evidence of a promise
by the defendants to pay it, or in consequence of their failure to
comply with theif agreement in furnishing iron according to their
cpnt;Fact,
Thompson, J., who delivered the opinion of the court, said:

"The judgments which the plaintiffs received by assignment, and
which they undertook to pay and did pay, bore interest, and this
42
330 L-^T^ OF USURY.
was all the interest they could recover. They had commissions on
sales of iron and guaranties. This was a proper charge in the
accounts current, but the two and a half per cent for advances was
not. It is true there was evidence of a promise to allow these
commissions ; but as they are usurious, the agreement cannot be
enforced. If the defendants chose to fly from their promise in this
respect, the law permits them to do so. It is a matter entirely
within the cognizance of their own conscience" {Orubb v. Brooke,
47 Pe7hn. B., 485, 488 and vide La/rge v. Passmore, 5 Serg. <&
;
Rawle's It., 51).

In the State of West Virginia, a case came before the- courts, in
which it appeared that B. agreed to purchase and raise for T.,
during the next year, about 8,000 hides to tan them in Yirginia
;
and deliver them in IsTew York. For those purchased by B. the

drafts of B. at three months were to be accepted by T., and T. waS
to be allowed five per cent commission or advance on the cost of
the hides, whether purchased by himself directly or by B., and to
sell the leather at his discretion, and be allowed six per cent com-
mission and guaranty on the gross amount of the sales ; and after
deducting the cost of the hides and expenses thereon, with interest
on the same from the time they became due, or were paid for by
T., together with any expenses he may have had to pay on the
leather, as well as any advances he may have made, together with
the advance on hides and commission on leather, as specified, to
pay over to B. the net proceeds of the same the property in aU ;
the hides and leather to be in T., who was to pay the insurance
and charge the cost thereof to B. T. purchased 801 hides and B.
10,154. T. was a New York leather dealer, and B. a Virginia
tanner. The court held that the transaction was usurious {Brdkely,,
V. TuttU, 3 W. Va. B., 86).
The old Supreme Court of the State of New York, where goods
fraudulently obtained were deposited with an auctioneer, who
made an advance upon them, and charged five per cent besides
the usual commissions, held that the transaction was usurious and ;
for that cause the auctioneer was declared not entitled to be con-
sidered as a hona fide purchaser, in an action of trov&r brought
against him by the party from whom the goods were obtained,
although he was wholly innocent of the fraud. The court* seems
almost to have taken it for granted that the transaction was usuri-
ous, and only discussed the question as to whether the auctioneer
TRANSACTIONS BSiLD USURIOUS. 331
ffas liable in trover to the owner of the goods, because he receiyed
theui under an arrangement which was usurious {Rarm'dell v.
Morgan, 16 Wend. B., 5T4).

And in a certain case before the same court, it appeared that E.
was applied to by P. for a loan of money, but not having it,
referred him (P.) to his son-in-law, whose usage he said it was to
receive seven per cent, besides legal interest ; and, by arrangement
between himself and P., received P.'s note with an indorser, and
procured the money of his son-in-law, at the rate mentioned by
him, on his own note, which he afterward paid, and gave P. credit
from time to time on P.'s successive indorsed notes, held by E. him-
self. The court held that R. must be considered the lender of the
money that he did not stand in the light of a mere security of P.,
;
and that the notes taken by him were usurious and void. It was
further held by the court that, where the original loan is-
usurious, all however remote or often
the securities therefor,
renewed, are void. The doctrine was also declared that, where
one, as agent, lends money for another, at a usurious rate of inte-
rest, and afterward pays him, and takes security from the bor-
rower in his own name, it is void, though he derive no benefit
from the loan and the premium go to the exclusive benefit of the
principal. Sutherland, J., in delivering the opinion of the court,
said :
" The only supposition upon which the usury can be got rid
of is, that Parker's note was not given for the loan, but was given
inpayment of the $800, which the plaintiff had paid Eoswell Eeed.
Every fact in the case is at war with such a supposition. The
plaintiff did not pay Eoswell Eeed until about a year after the
loan was made. But Parker's note was given either the day before
'or the very day that he received the money. It could not, there-
fore, have been given in satisfaction of an advance which had not
been made.
" In every point of view, I consider this one of the clearest cases
of usury that was ever presented to a court of justice ; and if the
miserable contrivance which has been resorted to, to screen this
transaction from the operation of the statute, should prove effec-
tual, either the law itself, or the administration of it, would be
brought into deserved dishonor" {Beed v. Simth, 9 Cow. B., 6i7,

651, 652 cmd vide Levy v. Gadsby, 3 OrancKs B., 180).
;
In the State of Yermont, in a case decided by the Supreme

Court, it appeared that an agent, in negotiating a loan, sold his
332 IiAW OF USUBT.
property to the borrower at a price much above the true value,

and itwas clear that the purchase was made in order to procure
the loan, though without the actual knowledge of the lender; it
was held, in a suit by the principal to enforce a security for the
loan, that the transaction was usurious that is to say, that, under
;
the laws of the State, the price of the goods above the true value
thereof was usury {Austi/n, v. Ha/rrmgton, 28 Vt. H., 130; lut
vide Baxter v. Buck, 10 id., 548).
And where it appeared that F. & N,

in the State of Yirginia,
were indebted to a bank, for which the bank had recovered a judg-
ment against them, whereupon they applied to the bank for indul-
gence, and the bank agreed to give them a long indulgence, upon
condition that they would give real security for the debt, and more-
over to pay the attorney of the bank all the costs of the suit, and
the commission which the bank had agreed to give him for collect-
ing and receiving the debt, to which they acceded and, accord- ;
ingly, the debtors gave the real secm-ity for the debt, and one of
them paid the costs and part of \he commissions oi the attorney,
and a note was given to the attorney for the balance of the com-
missions ; the attorney having full notice of the terms of the agree-
ment between the bank and the debtors ; the court held that the
agreement between the bank and the debtors, and, therefore, the
note given for the commissions to the attorney, were usurious, and
could not be enforced {Toole v. Stephen, 4 LeigKs R., 581).
An interesting case may be referred to, which came before Lord
Kenyon, of England, and by him held to be usurious,, but which
has since been the subject of considerable discussion. The case
was this : The defendants were bankers at Portsmouth, and on the

21st of December, 1792, Thomas Knott, the servant of a Mrs.
Stewart, drew a bill for £600 on Sedley, her agent in London.
The bill was payable to the defendants, or order, thirty days after
date, and, immediately after it was drawn, it was taken to the
defendants, who gave their note for £600, payable three days after
sight, in London.- For this the defendants received a discount of
five per cent, calculated on the thirty days the bill had to run, but
making no deduction on account of the three days the note had tc
run after sight, or of the three days' grace which the bankers took
thereon. Knott, on cross-examination, admitted that the money to
be received on the draft was to be remitted to London, but swore
that no money was offered to him by the defendants, but that they
TRANSACTIONS BELB USURIOUS. 333
gave him the note at three days' sight, without asking any questions
as to the mode in which he would be paid the money. All the
other transactions between the parties were of the like nature ; and
another witness proved that these notes, payable at three days' sight,
were discounted when they arrived in London. Lord Kenyon said
he was clearly of opinion that this was U usurious contract, whether
the person discounting the bill chose to receive a note or money.
If Mrs. Stewart chose to have a note payable in town, the defend-

ants should not have taken interest for the time the note had to run,
but should compute the interest from the time it was payable and ;
on Mr. Lubback, the banker (who was on the jury), saying that,
whenever he sent a bill to Bristol, the drawee sent a bill on Lon-
don, payable at thirty days after date, his lordship said that the law
in this case was and that no usage whatever could control it.
clear,
On this the parties compromised the catise, arid agreed to withdraw

a juror ; which done. Lord Kenyon said :
" Now the cause is over,
I must say one word for myself. I am most clearly of opinion that
this is usury. Whether the party consented or not can make no
difference. She was entitled to receive in money the amount of
the bill, after deducting the interest for the time it had to run.
The defendants could not give a note payable in six days without
deducting from the discount the interest for those six days. There
may be where a country banker may be entitled to receive
eases
more than five pounds per cent such was the case of Sudbury
;
Bank, which came on in this place some years ago, and in which
my opinion concurred with that of the jury. But all men, lawyers
or not lawyers, must agree on this case, because here was a second
discount paid on the notes. The case is so clear that no two men
in the profession can entertain different opinions on it " {Matthews,
qui tarn, v. Griffiths, Peake's N. P. C, 200).
And, according to a manuscript note of this case, Lord Kenyon,
in the course of his opinion, used the following expressions :
" When
a party takes five pounds per cent, discount as for ready money,
and yet does not pay for ready money, but bills payable at a future
day, though both parties consent to this transaction, and though it
may be for the convenience of bothj I am clear that it is usury."
And " this
is an offense, against the statute of usury, for taking five
pounds per cent for that which was incapable of being converted
intomoney's worth up to the extent for which the discount was
taken " {Hamimett v. Yea^ 1 Bos. <& Pul. H.j 153, note a).
334 ZAW OF USURY.
Three years afterward, Lord Kenyon, adverting to this case, said

that he knew his opinion had been questioned by mercantile men;
but, after all the consideration he had been able to give to the case,
he thought it was rightly decided {Maddooh v. Ha/mmett, 1 Term
R., 185).
Soon Lord Kenyon's opinion was canvassed in the
after this,
English Court of Common
Pleas, in a case of discount and remit-
tance, which came before the judges on a motion for & new trial.
In adverting to the case with reference to the one before him.
Chief Justice Eyre said " The authority of a case said to have
:
been determined at nisiprius has been very properly pressed upon

us in the argument. Certainly the opinions of the judge who is
said to have decided that case are at all times entitled to the highest
respect from me, and from every judge in Westminster Hall; and
I will never hastily decide against the advised opinions of that great
lawyer. * * * According to the letter of that case, as it has
been reported to us, it was said that unless the payment is made in
ready money, the transaction is usurious this would at once put
;
an end to the banker's business " {ETammett v. Sir W. Yea, 1 Bos.

S Pul. B., 144).
The Matthews v. Griffiths may be con-
authority of the case of
sidered somewhat shaken by the later decisions, and yet it is impor-
tant as a reference on account of some of its features, and on
account of the distinguished ability of the judge who decided it.
The Supreme Court of the State of New York, at Special Term,

has held that where a lender received from the borrower a security
for the payment of the sum loaned, with and thereupon
interest,
gave him his check for the amount loaned, amount of a

less the
note which the lender held against the borrower, which check was
payable in six months, without interest, the transaction was usu-
rious {Lane v. Losee, 2 JBarh. H., 56).
And to the same effect is the decision of the Court of Appeals
of the same State, wherein it appeared that a bank, in discounting
a note for a customer, made it a condition that he should pay the
interest on the note for the fuU time it had to run, and that he
should keep on deposit in the bank a portion of the proceeds until
the maturity of the note. The court held it to be a bold case of
usury.
Potter, J., in his opinion, said :
" If the statute prohibiting usury
can be evaded by such a subterfuge as has been offered in this case,
TRANSACTIONS MBLD USURIOUS. 335
it has become a dead letter, and better be repealed at once. By
such a contrivance, an individual or a bank, in the loan of one-half
their capital, may draw interest upon the whole. The device in
this case, lacks even the merit of ordinary skill in its consumma-
tion; it is an act of cupidity, an extortion tha't is not provided
with even the decencies of a cloak to cover its nudity" {East
River Bank v. Hoy% 29 How. Pr. R., 280, 285 ; 8. G., 32 W. T.
R., 119).
• In all these cases it is a question of fact for the jury whether the con-
tract was made fairly and honestly, or whether it was intended merely
as a cloak for usury. As for acts of general agency, where money
is advanced by an agent, so for the discounting and negotiating of
bills of exchange, the law, under certain restrictions, allows a rea-
sonable commission as a recompense for trouble, and a reimburse-
ment for expenses. But the transaction will in no case be upheld
when it appears that the compensation or commission was unrea-
sonable, or when the particular form of the contract was adopted
for the purpose of enabling the lender of the money to realize
more than the legal rate of interest. Every
must depend
case
principally upon the circumstances attending it and it very seldom
;
occurs that one case of this character will be found which is entirely
decisive of another. And yet every decided case may involve
principles and discussions which will aid in the determination of
others of the same class. The rule is now universally recognized
that, for the convenience of traders, a reasonable compensation to
bankers and merchants, for the trouble and expense they may incur
in the various negotiations incident to paper credit, will be allowed,
in addition to the regular interest. But when the trouble and
expense are not incurred, then the remuneration cannot be claimed.
A case in point, upon the subject of exchange, has been hereto-
fore referred to, under another head. The case was finally decided
by the New York Court of Appeals, wherein it appeared that the
borrower of money in ITew York agreed to pay, for the use of it,
seven per cent interest and a part of the difference of exchange paid
by the lender (a resident of Savannah, Georgia), on the transfer of
the money from Savannah to Eêw York, immediately previous to
the loan. The court held that the contract was usurious, and that
the notes given for the money so loaned were void. From the
fact that the lender's money, at the time of the loan, was in New
York when the loan was contracted, the court declared it not a
336 IiAW OP tfStTRT.
proper case for any charges on account of exchange {Jacks v. Nioh-

ols, W. Y. B., 178).
5
The Supreme Court of Wisconsin has held that an agreement
for the payment of exchange in New York upon a note, in addi-
tion to the highest amount of legal interest thereon, when the
note is made, and is payable in the State of Wisconsin, is usurious
{Towslee v. Durkee\ 13 Wis. ^.,480).
The same court held in another case that the provisions of the
statute against usury apply as Wfell to banks as to natural persons, and
that where a claim for exchange is a mere pretext for the obtaining
extra interest, the contract will be usurious {Dwrltee t. City Ba/nk,
13 Wis. B., 216).
And so also the same court held in still another case that where
a note is executed in the State of Wisconsin and payable there, the
demand and payment of exchange upon New York, as a device to
cover the taking of illegal interest, renders the transaction usuri-
ous and. in the same case it appeared that A., to obtain from a
;
bank of the State of Wisconsin forbearance on his indorsement of

B.'s note, procured and indorsed to the bank a new note of B. for
the same amount, and.paid a sum greater than ten per cent interest
on the same, the court held that the transaction was usurious, and
that under the law of 1859 no recovery could be had upon such
indorsement, nor upon any subsequent note executed by A. to take
up the note so indorsed {Eoeh, etc., BomkY. WooUscr&pt, 16 Wis.
B., 22).
Ah important case upon this subject was recently decided by the
New York Court of Appeals, and the decision was adverse to the
right to the receipt of exchange under the circumstances of that
case. The facts were these : In November, 1855, the plaintiff was
indebted to the Lyons Bank, a banking incorporation, doing, busi-
ness at Lyons, in the county of Wayne, in the State of New York,

in the sum of $4,000, in three promissory notes payable at the
Albany City Bank, in the city of Albany ; one for $1,000,- due
October 31st; one for $2,000, due November 6th; and one for
$1,000, due November 8th of the same year. In renewal of the
two last named notes for the brief period of twenty-five days, the
was required to give and did give his new note for $3,000,
plaintiff
payable at the Albany City Bank. He was also required to pay
the discount at the rate ef seven per cent per annum, and one-half
of one per cent for the difference of exchange between Lyons and
TBANSAOTIONS BELD USUBiqUS. 337
Albany, which he paid at the time of the renewal. The transac-
tion was held to be usurious.
Brown, J., in his opinion, said :
" The facts present a clear and
unequivocal case of usury. It is condemned' to this category by
the clear and argument of the case of OU/oer Lee <& Go.^s
logical
Bamk v. Wailhridige {srwprob), cited in its support for if it be an ;
indisputable proposition that a given sum of money is of the same

legal and theoretical value in all patts of the State, then whenever
the Lyons Bank assumed the converse of the proposition, and took
from the plaintiff one-half of one per cent in addition to the legal
rate of interest, upon the theory that after the lapse of fifteen or
forty-five days a given sum of money at Lyons would not be of

the same value as it would be at Albany, it converted what was
speculation into absolute reality, and it introduced a vicious ele-
ment into the transaction which brought it within the prohibition

of the statute which forbade of taking of more than seven per cent
for the loan or forbearance of money."
Wright, J., in his opinion, said :
" The plaintiff made the $3,000
note, paid the discount at seven per cent on that sum for the
twenty-fiv© days, being fourteen dollars and thirty-eight cents,
and fiifteen dollars in addition, under the name of exchange.
Now, if this was not a usurious transaction, it would, in my
judgment, be difficult to conceive of one within the statute.
The two notes, in renewal of which the $3",0G0 note was
given, though payable at the Albany City Bank, belonged to
the Lyons Bank, and hadl no value to the Lyons Bank beyond
the amount expressed On their face, although payable in Albany
{pVimer Lee cfe Qoh BanJt v. Walbridge, 19 N. Y., 134). To
obtain a forbearance of twenty-five days for the payment of the
$'3,000, the amount of those notes, the plaintiff paid th6 discount
at seven per cent on that sum for the twenty-five days, and fifteen
dollars in addition, called exchange, amounting in all to the sum
of twenty-nine dbllars and thirty-eight cents. This sum was,
in fact, paid for the twenty-five days' forbearance, being over
fourteen per cent, as the Lyons Bank had no right to demand
exchange. That this rendered the whole usurious and void,
seems very clear. * * * The $3,000 note was, therefore,
usurious and void, and all the securities which followed and
grew out of it in the regular line of descent, including the bond
43
338 LAW OF USURT.
and mortgage, were void. Usury contaminates all subsequent

securities.
" A majority of my brethren, however, are not inclined to go
the length of holding -that ithe evidence disclosed a case of usury in
law, but are of opinion that the referee,dnstead of nonsuiting the
should, under the proof, have passed upon the question
plaintiflF,
whether the transaction was or was not intended as a device for

evading or violating the statute. From this view I am not dis-
posed to dissent " {Price v. The Lyons Bank, 33 N. Y. E., 55,
57-60).
CHAPTEE XXV.
TEANSACTIONS HELD TO BE 1J8UEI0US CASES WHEEE EXCEBirANT
INTEEEST IS TAKEN TOSTDEE THE FOEM OP DISOOHNTS CASES OF —
OONTINGENGT OE PEOMPT PAYMENT.
It is well settled that both banks and private money lenders

are authorized to make discounts ;
may receive
and, hence, they
interest, in ordinary cases of commercial paper, in advance,
although, strictly speaking, the practice of deducting the interest
out of the loan, at the time it is made, deprives the borrower of
the use of the whole money for the time the debt is forborne.
But, in all eases where more than legal interest is deducted, by
way of discount, the transaction is held to be usurious. A few of
the leading cases of this character will be referred to.
In the State of Maryland a case came before the courts in which

it appeared that A., being insolvent and desirous of raising money,
applied to B. and obtained his promissory note for $250, payable
to the saidA. in sixty days after date, for the purpose- of selling
it money. No consideration was paid for the note. A,
to raise
indorsed the note in blank and sold and delivered it to C, who
was ignorant of the important fact that it was a note for
|200.' It appeared that B. was in good circumstances. In an
action on the note by 0. against B., it was held that the note was
usurious and void {Oockey v. Forrest, 3 Gill, da Johns. H., 482).
A similar case, in principle, came before the Supreme Court of
North Carolina and was decided in a similar manner.
The case was this : A- indorsed a promissory note payable to
;
TRANSACTIONS HELD VSUKtOUS. 339

himself and delivered it to his clerk to sell to B., with directions
to conceal from him the fact that the note was A.'s property.
The clerk sold the note to B. at a discount of thirty-three and one-
third per cent, representing it as his own, and indorsed it to B.
without reserve. In a suit by B. against A., was held that the
it
transaction was usurious (Rvffm v. Armstrong, 2 Hawks, R.,

411).
And the Court of Chancery of North Carolina has held, that
although the sale of a negotiable security for a price less than its
value is valid, yet, if a greater discount than legal interest be

made, and the purchaser holds the person, from whom he receives
it, responsible for its payment, it is, upon the secu-
in fact, a loan
rity, and the transaction is usurious {Bellvnger v. Edwards, 4
Ired. Eq. B., 449). In the State of New York, however, a trans-
action of this character is not regarded as usurious. The note
would be good for the whole amount as against the origiaal par-
ties and the assignee of the note, if he guaranteed or indorsed
;
it, would be liable for the amount he actually received for it
with interest.
The North Carolina, however, is in accordance with the
rule in
doctrine In an early case, decided first
of the English courts.
by Lord Kenyon at nisi jprius, and then by the English Court of
King's Bench, it appeared that a bill of excliange, payable to A.
or order, which was legal in its inception-, was by A. indorsed to
B. for a usurious consideration, who passed it to a third person for
a valuable consideration, without notice of the usury, by whom it
was paid to B.'s assignees after his bankruptcy, in satisfaction of a

debt owing to the bankrupt estate. The court held that the
indorsement of A. to B. on a usurious account did not avoid the
bill, in the hands of an innocent holder, by virtue of the statute
of usury ; and that B.'s assignees, being clothed with the right of
such innocent indorsee, were entitled to hold the bill against A.,
although was expressly held and declared that, as between A.
it
and B., the security was void {Pa/rrv. EUasen, 1 East., H., 92
and vide Ferrcdl v. Shaen, 1 Saund. B., 294 Cuthhert v. Haley, ;
8 Term R., 390).

A similar point was decided in Massachusetts, where, as in Eng-
land, it was held that usury between the indorser and indorsee, in
the transfer of a negotiable promissory note, afEects only the promise
of the indorser, and canoot be set up as a defense to an actioji by
'
340 LAW OF USURY.
the indorsee against the maker {Knight v. Putnomi, 3 Pich B:,

184 and vide Foltz v. Mwy, 1 Bay's R., 479).
;
But in the State of Conneeticut it has been held that the maker
of a promissory note, sold by the payee to th& indorsee upon a
usnrious consideration, may avail himself of such usury in an action
against him by the indorsee. Although it was declared that tie
sale of a promissory note, indorsed by the seller, at a discount
exceeding the lawfiil rate of interest, was not necessarily usurious,
and that it was incumbent on the party claiming that it was usuri-
ous to show the circumstances which make it such {Lhyd v.
Keeeh, 2 Qorm. M., 175).

A
case came before the late Court of Chancery of the State of Kew
York, where, by agreement between A., B. and C, A. and B. were to
exchange, notes for the same amount, .and A. was to sell B.'s note
to C at a discount greater than the legal rate of interest, and the

agreement was carried into effect. The court held that the whole
transaction, was usurious and void {National Insurance Gompamn/'
V. SmTceM^ 11 Forge's M., 660).
In the State of Ohio, this Supreme Court has held that where, under
the pretext of discounting an instrument in the form of a bill of
exchange, a bank took more than l«gal interest, the contract was
void for usury {Qilhert v. Sewels; 9 Ohio N. 8. H., 4.61)>
A very decisive case upon this point was recently before the Court
of Appeals of the State of New York, wherein it appeared that a note
was given without any consideration by the defendants, and proper
indorsers procured, with a view of having the same discounted at
the bank and before the note had a legal inception an arrange-
;
ment was made between the plaintiff and the defendant by which
the plaintiff was to discount such note at seventeen per cent, and
the note was left with one of the indorsers thereof, who was to
receive the money thereon and deliver the note to the plaintiff,
which he did. The Supreme Court and also the Court of Appeals
held that the transaction was usurious and the note void.
And it was further held and declared that the fact that the plain-
tiff, at the time of discounting the note, withheld seventeen per
cent, and at the same time, without the knowledge or consent of
the defendant, gave his own note for ten per cent of the note dis-
counted, which note never came to the possession of the defendaBifc

and which he never paid, did not change the character of the trans^
action,
TRANSACTIONS HULD USURIOUS. 341
Potter, J., iwho delivered the opinion of the Court of Appeals,

said :
" In carefully looking at the whole case, the report of the
referee can be sustained upon the evidence in each of his findings

'of fact. This being assumed to be true, the conclusion of law is
right. If the plaintiff knew, as the evidence justifies the conclu-

sion, that he was discounting this note and not buying a previously
negotiated busioiess note, it presents a shameful case of the viola-
tion of the statute concerning usury. The judgment is right and
should be affirmed " (êweZ^ v. Doty, 33 if. Y. B., 83, 94, 95).
In an early case decided by the old Supreme Court of the State
of New York, it appeared that A. made a note payable to the
defendant or order, which was (indorsed by the defendant for the
purpose of being discounted at a bank for the accommodation of

A. The defendant took the note to the bank to get the same dis-
counted pursuant to the arrangement, but the bank refused to

discount it. He then negotiated the note to a third person, who
discounted it at a higher premium than the legal rate of interest.
When the note :became due an action was brought upon it against
the defendant as first indorser. The court held that, inasmuch as
none of the parties Whose names were on the note could, as
between themselves, maintain a suit upon it when it became pay-
had not been discounted, the note was usurious and void.
;able, if it
Spencer, C
J., delivered the opinion of the court, and was very
decided that the transaction was usurious, but discussed, principally,

questions relating to the admissibility of certain evidence offered
on the trial, arriving at the conclusion that a verdict in favor of
the plaintiff foi: the amount of the note should be set aside, and
a new trial granted {^Powers v. Waters, 17 Johns. M., 176, wnd
vide Munn
The Commission Gompcmy, 15 ih., 55).
v. '
And in a subsequent case before the same court, wherein it

appeared that a note was made payable to A. or bearer, though
never delivered to the said A., but passed by the maker to one H.
as a security for a usurious loan, or rather it was sold to the said
H. at a discount from the sum due thereon at the time of the sale,
the court held that the note was usurious and void, and laid down
the rule that apromissory note has no legal inception until it is
delivered tosome person as evidence of a subsisting debt {Marvin
V. MeGullum, 20 Johns. B., 288).
In the State of Maine, a case came before the Supreme Court,

wherein it appeared that a person holding the note of another.
342 - i-^PT OF USURY.
which was made for his accommodation, passed it td a money

lender, who discounted it at a usurious rate of interest, knowing the
purpose for which the note was made. The court held that the
note not being valid as a contract until negotiation, and therefore
the retention of more than the legal rate of interest upon discount-
ing it was usurious {Tufis v. Shepard, 49 Maine JS., 544).
A case was decided by the Supreme Judicial Court of Massachu-

setts, in which it appeared that the defendant made his promissory
own order, indorsed it, and employed an agent
note payable to his
to sell it The agent accordingly sold the note for the
for him.
maker for less than its face to a person who supposed that he
was merely purchasing the note in the market, and knew nothing
of the fact that the seller was acting only as an agent. The jury,
under instructions of the judge in the Superior Court, found a ver-

dict for the plaintiif for the full amount of the note, and the
defendant alleged exceptions. The Supreme Judicial Court held
that the transaction was usurious, and sustained the exceptions.
Bigelow, C. J., in his opinion, said :
" The transaction
proved at the trial, by which the note in suit was negotiated to

the person who received it as the first holder for value, was in
legal effect equivalent to a delivery of the note by the promisor
directlyfrom his own hands in consideration of the money advanced
to him therefor. It was a loan of money to the defendant on the
nate. The fact that the money was obtained through an agent of
the defendant does not in any degree change or affect the legal
'
character which attaches to the dealings of the parties. Until the
note was negotiated by the defendant's agent, it did not become a
binding and operative contract, upon which the promisor could
be held liable. * * * It is not, therefore, made to appear that any
deception or fraud was practiced in the negotiation of the note, or
that by the use of due diligence and proper inquiry the person
who first advanced the money on the note might not have ascer-
tained the real nature of the transaction. Under such circumstances
it cannot be said that there was no loan of money on the note at a
usurious rate of interest, unless we are prepared to aflirm the pro-
position that an advance of money to a promisor on his note,
through his servant or agent, at a greater rate of interest than is
allowed by law, does not constitute usury. Such a doctrine would
be inconsistent with first principles, and contrary to the well setr
tied course of judicial decisions" {SyVoester v. Swcm, 5 Allen's R.,

134, 135 ; hit vide Mitchell v. Oakley, 7 Paige's JR., 68).
And the same learned court of Massachusetts held in a later

case that if an accommodation note is disposed of by the payee for
less than its face, the transaction is usurious, although the indorser
takes it without notice that it is an accommodation note.
Bigelow, C. J., delivered the opinion of the court, and said:
" The note did not become an operative contract, binding on the
defendants, until was negotiated by the payee to the broker, who
it
advanced upon it a sum less than the amount due them, after
deducting lawful interest. Previous to such negotiation no action
could have been maintained upon the note by any one. Such
advance of money was in legal effect a loan, and not a sale of a
negotiable note in the hands of an indorsee. If a greater rate of
interest than six per cent was reserved upon it when it was thus
negotiated, the contract was usurious, and the defendants were

entitled to a deduction of three-fold the amount of the interest so
unlawfully reserved under Gren. Stats., ch. 53, § 4, even in the
hands of a bona fide indorser " ( Whitten v. Hayden, 1 Allen's
B., iOl; and vide Kendall v. Bohertson, 12 Gush. B., 156).
A quite significant case upon this point was decided by the old
Supreme Court of the State of New Tork just previous to the
change in the judiciary of the State under the Constitution of
1846. The action was upon a promissory note made by the
defendants, dated April 16, 1841, for $253.84, and was payable to
the plaintiff or bearer in six months from date, with interest. The
defense was' usury. It appeared that in January, 1840, the
defendants gave their note to one Southard or bearer for $250,
payable in one year, with interest, which he transferred to the
plaintiff with his guaranty indorsed on it, at a large discount
beyond the legal rate of interest. It was not paid up when it fell
due,and the note in suit was afterward given for the balance due
upon it, in order to take it up. The plaintiff gave evidence to
show that when Southard transferred the first note to him, he
represented it to The judge charged the jury,
be a business note.
at the circuit, that the defendants are not liable on the note. The >
jury found a verdict for the defendants, and the plaintiff moved
for a new trial on a case but a new trial was denied.
;
Beardsley, J., delivered the opinion of the court, and said : "An
accommodation note is invalid in the hands cd the person for
;
344 I'AW OF USURY.
whose benefit it was made, and if discounted for him at a usuri-

ous rate, it is equally invalid in the hands of the person who thus
receives it. The legal attributes of accommodation paper are not
changed by a promise, performed or unperformed, to give security
for its payment by the person for whose benefit it was made. It
is still but accommodation .paper. The person for whom it was
made cannot collect it. As to him, the maiker is but- a surety, and
if the note is transferred 00 usurious terms, it is void in the bands
of the person who thus receives it " {Dowe v. Schuti, 2 Benio's E.,
621, 623, 624; and vide Williams v. Stonen, 2 Bmr's JS., 52).
And in a somewhat same distinguished court
earlier case, the
held that a party who buys in accommodation note, before it has
been used for any business purpose, stands in the same situation
in respect to the defense of usury as if he were the payee named
in the note ; and this, though he took the note supposing it to be
business paper.
Cowen, J., in delivering the opinion of the court, said: "The
notes were given while the provision of the Revised Statutes
was in force declaring usurious notes, etc., void, but that this
• should not extend to an indorsee in good faith, for valuable con-
sideration, and without actual notice that the note had been
originally given for a usurious consideration (1 H. S., T60, 761,
§ 5), They, however, had their inception by the act of discount

and the case was, therefore, as if they had been directly payable
on his advance of an usurious loan. The statute
to the plaintiff
does not protect a man who participates in the original concoction
of usurious paper ;a man who is himself the prominent actor ia
the, usurious transg-ction. The two cases of Satterwevn v. Brun-
ner (1 JSâr. (& Gill., 4:77), and Cockey v. Forrest (3 Oill & John.,
483), settle the question. The New York cases were there con-
sidered and applied on a course of legislation exactly like ours,
the latter case being the same as the one at bar" {Aeby v. Bafdye,
1 HilVs E., 9-11:5 lut vide, contma, Whitworth v. Yancey, 5
Baml. E., 333).

In the State of South Carolina, an action was brought by the
indorsees against the indorser on a note for $1,878.63, drawn by
Brown and Moses, payable to the defendant, and by him indorsed.
It appeared in evidence that Brown, of the firm of Brown &
Moses, on or about the. 24th of December, 1818, borrowed of the
plaintiffs the sum of $3,500 ; for the use of which, for fifteen
;
TRANSACTIONS SI!LD USUBIOUS. 345

days, lie paid $92.50, being at the rate of sixty-five per cent, or
thereabouts; that sometinre previous to that, Brown & Moses
drew the. note in suit, and it was indorsed by the defendant as a
friendly act, to enable Brown to pay for certain merchandise
which he had purchased, but was never used for that purpose
and when Brown borrowed the $3,500, for which he paid the
usurious interest, he passed away this note, with others, to the
plaintifi's as collateral security for the, loan. The court held that
the note was usurious in its and set aside a verdict for
inception,
the plaintiffs in the action upon the note, and it was declared and
decided, that the fact of the note in the action having been
originally intended for a legal purpose could not vairy the case, as
it was never used for that purpose ; that ithad no legal existence
until paissed by Brown to the plaintiffs ; that no consideration had
ever been paid for it and that it was in
; fact no more than a earte
lilcmohe until put in circulation {Smiih's Administraiors v. Payne,
Sice's digest, 37).
It has been shown in a previous chapter, upon authority, that
where ai debtor may avoid the payment of exorbitant interest by
:promptly paying the principal, the excessive interest contingently
agreed to be paid will not be usurious; exceptia^' those cases
where the abatement may have been iatended as a cover for usury.
But cases, fixed in this Jôrm, have sometimes been held to be
within the statutes against usury. For example, in the State of
.Kentucky a case came before the courts, in which it appeared that
a judgment had been recovered against a principal and surety
then, upon an agreement, the surety signed the replevin bond,
and the principal gave him a note which included the full amount
of the replevin bond, with about thirty per cent added to it and ;
the surety agreed in writing to credit the note with the same
amount, provided the principal paid the replevin bond himself.
It was, however, agreed in the pleadings that the arrangement
was intended not merely to have the effect of a penal bond, but
as an indemnity to the surety in case the payment of the replevin
bond should devolve Upon him. The court held that this was but
an agreement for a loan of money in a certain contingency at a
future day, upon the understanding that more than the legal rate
of interest should be paid for the loan, and that the contract was
usurious. It was decided, nevertheless, that the surety might
•enforce the judgment he had on the note to the amount actually
44
346 LAW OF USURY.
paid by him in discharge of the replevin bond, with legal interest

from the time he paid it. From the balance the principal was
reliered {Moore's EaieGutor v. Vance, 3 DcmdJs B., 362). •
As a general proposition, it may be affirmed that the original

taint of usury attaches to aU consecutive obligations- and securi-
ties growing out of the original vicious transaction; that is to
say, it attaches to all renewals of the original security whenever

made or given ; and it also vitiates every new security into which
the original usurious consideration enters.
In one easej decided by the present Supreme Court of the State
of New York, it appeared that D. executed his mortgage to secure
the payment of a usurious loan. Subsequently the defendant, at
the request of D. and without any consideration therefor, made

and executed a mortgage upon his land to the lender, as a substi-
tute for the mortgage of D., which was given up and canceled.
The court held that the mortgage of the defendant was void for
usury. Allen, J., delivered the opinion of the court, and reviewed
the authorities and a liberal extract from his opinion will present
;
an intelligent view of the doctrine upon the subject. The judge

says " The rule is, that any security given in payment or discharge
:
of a usurious security is equally void with this (Pars, on Cont., 396).

The original taint of usury attaches to all consecutive obligations
and securities growing out of the original usurious transaction;
and none of the descendent obligations, however remote, can be
free of the taint, if the descent can be fairly traced {Dunning v.
Merrill, 1 Claris G. B., 252). It would not have been ques-
tioned that the mortgage of the defendant would have been void
for usury if it had been given upon the making of the loan and to
secure its repayment, and as an original security. And the statute
of usury would be very easily evaded if a security of a third per-
son, taken a few days or a few months after the loan, in lieu of the
obligation of the borrower, would be valid; A
new security of
the borrower for the same debt would have been vitiated by the
usury, and the obligation of a third person stands upon no better
foundation. Harrison v. Hannah (5 Tav/nt., 780), was this A., :
being indebted to the plaintiff in ninety pounds, and twenty pound?

upon illegal consideration, and in a large sum on usurious loans, in
consideration of the plaintiff advancing him £150 more, on legal
interest, procured him the defendant's acceptance for £100, £110,
and fifty pounds, for securing the whole balance due from A. to
the plaintiff; and it was held that these bills were tainted by the
usurious transaction, and could! not be enforced against the defend-
ant, the acceptor, to the. extent of the debts untainted by usury.
Heath, J., says: 'Suppose these acceptances had been given by
the son instead of the. father. There could be no doubt that they
would have extended to the whole, and, therefore, would be void.
And if by the father could alter the
the giving these acceptances
case, it would be a by which the statutes of usury
shift or device
would be defeated.' That the defendant's mortgage was a security

given for the usurious loan is plainly alleged, and was given upon
no other consideration, and to secure no other debt. And it is
declared in all the books, that every subsequent security given for
a loan originally usurious, however remote or often renewed, is
void {Wallace v. Bank of Washington, 3 How., 62). A change

of security, either as to character, form or parties, does not purge
the illegal consideration, so as to give a right of action on the new
security ; as, where a new note, without any new consideration,
was given by a third person, a stranger, to take up a note in the
hands of the original party to the contract, it is tainted by the
illegal considerationof the first note {Tuthill v. Davis, ^Q Johns.,
285). That the new security was a mortgage, rather than a note,
cannot affect the question. Neither the renewal of an old, nor
substitution of a new security, between the same parties, can efface
usury, nor further security, nor a guaranty given subsequently by
a stranger {Brinkerhoff v. Foote, 1 Hof., 291 ; Ruddock v. Boyd,
id., 294; and
see, expressly, iy Hoffman, Yiee- Chancellor, at pp.
306-308). In Bridge v. Hubbard (15 Mass. B., 96), which was

an action upon a note given in place of the borrower's note given
up, Parker, Ch. J., says :
' It is true that the borrower's name does
not appear upon this note ; but we cannot perceive that this cir-
cumstance is essential, when the object and views of the party for
whose use the note was made are such as appear in the report of
the case.That the parties liable on the note were not privy to the
usurious bargain is not a fact of importai ce, if the true destination
of the note was to secure such a bargain made by others for the
use of .him who was to reap the fruits of the bargain ' {And see
Steele v. Whyople, 21 Wend., 103 ; Fowell v. Waters, 8 Gowen, 669,
001, 692 ; Reed v. Smith, 9 id., 647). Upon the facts alleged in
the answer, the mortgage of the defendant was void for usury"
{Vickeryw. Dickson, 35 Barh. R., 96, 98-100).
S48 JÂW OF USUBT.
Here is a case directly upon the point under consideration, in

the decision of which we have a judicial construction of a number of
other authorities on the point, which supersedes the necessity of any
further reference to the cases examined by the judge in his opinion.
And it has been held by the same learned court, in a more recent
case, that, where a bond and mortgage are usurious and void, a
subsequent bond and mortgage, for which the former securities
constitute the greater portion of the consideration, will also be
usurious and void {MeOrmiey v. Alden, 46 Bm"!). B., 272).
So, also, the Court of Appeals of the State of New York held,
at an early day, that, where a borrower, on obtaining a loan of
money at an illegal rate of interest, assigns to the lender bonds
and mortgages, in consideration of such loan, the assignment was
void, and that trover might be- immediately ndaintained for them
by the assignor {Sohroepêl v. Gornmg, 6 JV. Y. R., 107).
The Supreme Court of the United States, as early as 1810, in a
case wherein it appeared that an agent, who had, by permission of
his principal, sold eight per cent" stock, applied the money to his
own use, and, being pressed for payment, gave a mortgage to
secure the payment of the amount of stock, with eight per cent
interest thereon, held that the mortgage was usurious {Butts v.
Bacon, 6 GrancKs B., 252).
In the State of South Carolina, at a very early day, in a case
wherein it appeared that a bond had been given to secure the
payment of usurious interest by one who died before it was taken
up, after his death his friend, who was igfiorant of the usury, in
order to prevent a lawsuit to recover the sum due on the bond,
gave his own bond in lieu of the bond given by his deceased friend.
The court held that the second bond was void for usury {Edwards
V. Skming^ 1 Br&oard^s R., 548).
In the State of Iowa, in a case in which it appeared that money

was borrowed at usurious interest, and a part thereof, with the
usury, was paid, and a note given at a legal rate of interest for the
balance, the court held that the note was tainted with usury and ;
it was further held, in the same ease, that under the Iowa statutes
a contract is usurious wherein unlawful interest in any way enters,

whatever the nature of the consideration, whether for the loan of
money or for the purchase of real estate {Gallanam, v. Shaw, 24
Iowa B., 441 and vide Omnpbdl v. MoHarg, 9 il., 354 Smith
; ;
V. Gooper, ih., 376 ; Garth v. Cooper, 12 ib., 364).

TRANSACTIONS HELU USUMIOUS. 349
In the State of Massachusetts the Supreirie: Judicial Court has

held that it is a good defense to an action by an indorsee against
the indorser of a promissory note, indorsed for the accommodation
of the mater, that the indorsee received the note as security for
the payment of a usurious contract between him and maker {Duns-
cwnb V. Btmker, 2 Met.. B., 8) and the same doctrine has been
;
leeognized and adopted by the courts of Missouri ( Vide Weinser

V. SMton, 1 Mo. B., 23?).
In some of the States, negotiable paper, which is usurious in its

iaeeption, may be enforced in the hands of a bona fide holder.
Such was the law in New York prior to. the usury act of 1837.
Where such is the law, it becomes important to. u<nder&tand who is
regiarded as a honafide holder.
In an action decided by the old Supreme Court of the State of
ITew York, which was upon a negotiable promissory note dated
prior to the act of 183T, the court held that proof that a note was
ufiutrious in its inception was sufiScient, even as against an indorseej
to cast upon him the onus of showing that he paid a valuable con-
sideration for it.
Bronson, J., who delivered the opinion of the court, said :

" The
statute first decla/res void alll bills and notes infected with usury,
and then provides that the relation shail not extend- to any negotia-
ble bill or note in the hands of an indorsee or holder who received
the same, in good) faith, for a valuable consideration, and without
notice of the original taint of usuiry (1 B. S., 773, § 5). It was, I
think, enough for the defendant to show, in the first instance, that
the note was usurious and void ioi the hands of the payees. That
would cast on the. holder the burden of showing that he paid a
valuable consideration for the note.. Whether it would be neces-
sary for him to go. beyond, th^t, and show, also, that he took the note
before due and in the usual course of business, or whether the date of
the indorsement and the fact of subsequent possession would be
Buf&cient^mia facie evidence of good faith, is a question which we
need not now consider " {Seymour v. Strongi, 1 HiWs B., 563, 564).
And the same distinguished court held that a party who buys
an accommodation note before it has been used for any business
purpose, stands in the same situation, in respect to the defense of
usury, as if he were the payee named in the note, and this, though
he took the note supposing it to be business paper that such a ;
party is not entitled to be protected as an indorsee or holder in

350 LAW OF USUBT.
good faith, etc., within the statute referred to in the opinion of .
Bronson, J., in the case of Seymour v. Strong (1 Sill, 563).

Cowen, J., delivered the opinion of the court, and examined
the cases at considerable length, coming to the conclusion that the
.statute did not protect a party ^yho participates in the original
conception of usurious paper. He regarded the question settled
by authority, and laid down the rule as before indicated ( Vide

Aeby v. Eepelye, 1 HUVs E., 9-11).
In respect to what will be regarded a " valuable consideration "
within the statute, the same court held that where a bank dis-
counted a note to exlmguish a debt due it from the holder, or the

proceeds are applied towwrd discharge of his liability, such acts
were equivalent to panji/ng vcH/ue at the tmie, and constituted the
bank a holder for valuable consideration.
Bronson, J., in delivering the opinion of the court, said :
" The
note was transferred before the usury act of 1837 took effect.
The plaintiffs received it in good faith, without any notice of the

usury, and the only question is, whether they paid a valuable con-
sideration (1 E. S., 712, § 5). I think they did. It is not the
case of a note received in security for a fraudulent debt, without
parting with anything at the time. The note was disoov/nted by
the plaintiff for the benefit of Ward, to extinguish his deljt, and
the avails went to discharge his liability to the bank. I cannot
understand this language as meaning less than that the proceeds
of the note were actually applied to the use of Ward " {Bamk of
Samdusky v. Scoville, 24 Wend. E., 115, 116).
The foregoing rules respecting good faith and valuable con-
sideration in cases of usury are important to be understood, and
perhaps it is as well to refer to them in this chapter as anywhere
else. Other authorities might be referred to on this point, but
these may be considered sufficient.
TBANSACTIONS BBLD USUSIOITS. 351
CHAPTEE XXVI.
TEANSA0TI0N8 HELD TO BE TJSTJEIOFS ^ CASES OF A MISCELLANEOUS
NATtTEE.
A BRIEF reference to some few cases held by the courts to be

tainted with usury, but which are not sufSciently marked to
'
be placed under any of the foregoing heads, will close the dis-
cussion "of the subject in the aspect hereinbefore considered.

A case came before the old Supreme Court of New York, wherein
it appeared that on discounting negotiable paper interest was cal-
culated and received upon the principle of 360 days being a year.
The court held that this rendered the note usurious.
Sutherland, J., delivered the opinion of the court, and said:
" The principal question upon the argument of this case
raised
was, whether the' evidence was sufficient to show that the notes
were usurious on the ground of the interest having been calcu-
lated and retained upon the principle of 360 days being a year. It
was sufficient, prima facie, to establish the usury. In the first
place, the fact that more than seven per cent was taken was
proved, and to repel any presumption which might be indulged

that it was taken unintentionally or by mistake, the uniform cus-
tom of the company, to compute interest upon a principle which
would give more than seVen per cent was shown " {The TJtica
Insurance Company v. Tillman, 1 Wend. R., 555, 557).
The same court- held, in a later case, that a loan compamy,
authorized by its charter to loan money upon pledges of goods
and chattels, and to charge interest for a fvM month, when the
loan is for a period of fifteen days and less than one month, was
not entitled, where a loan made for 1/wenty days remained unpaid,
to demand interest at the same rate for any subsequent time that ;
the interest on the debt due at the expiration of the twenty days
should have been computed as an ordinary contract ; and it appear-
ing in the case that after the expiration of twenty days interest
was charged for a subsequent period at the same rate, and a pro-
mise for the payment thereof exacted and made at the same time
that abond was taken for the sum actually lent, the court held
computed was usurious, and that the agree-
that the interest thus
ment for the payment thereof, although not included in the bond,
352 £Aw OF nsuRT.
rendered the bond Toid for usury (Maoomher v. Dunham, 8 Weni.

B., 650).
In an early case before the same court, where a note was given
in renewal of a former note and a frernvwrn. or interest above the
legal rate was exacted for the renewal, the court held that the new
note was usurious and void, although a separate note was given by
the maker for the premium. It was declared and held,, however,
that the antecedent debt was not thereby destroyed.
And where a note so made in renewal, on a usurious considera-
tion, was passed by the defendant to the plaintiff, in part con-
sideration for the sale and conveyance of land, the court held, in
the same case, that the plaintiff, who had sued the indorser of the
note, and failed to recover, because of the usury, might maintain,
an action of assuTwpsit to recover the amount on the original con-
tract, the note being a nullity {Swarhoout v. Payne, 19 Johns. R.,
294).
A case came before and was decided by the present Supreme Court
of the State of New York, wherein it appeared that the defendant
"Wilson made a promissory note for $120, payable to one Upson or
bearer. The note was never delivered, but was placed by the maker
in his desk as a place of deposit, whence it was stolen by a laborer
in the employ of the defendant and transferred over to one Bigelow for
$115. Bigelow was not acquainted with the person who transferred
the note to him', but was introduced to him by another man, and
was told he had been at work for the defendant. Before the note
became due Bigelow transferred the note to the plaintiff, who was
his brother-in-law. The court held that the note never had a legal
inception for want of a delivery that the transfer to Bigelow was
;
void for usury, because it was not taken by him hona fide for a full
and fair consid'era,tion, and in the usual course of his business and ;
for this reason it was held that the plaintiff could not recover on
the note.
The court laid down the rule in the ease, that a promissory note
has no legal inception or vitality until it is delivered to some per-
son as evidence of a subsisting debt, and it was declared that,
where a note is not a perfect or available security in the hands of

the holder, the discounting or purchase of the same at a greater
discount than the legal rate of interest renders the transaction
usurious and the note void ; and this, notwithstanding the trans-
;;
TRANSACflOm BSLD USURIOUS. 353
action in form a purchase of the note of a person other than the

is
maker, who represents it to be a business note, and valid in his

hands, and whether the party transferring has authority to do so,
of the transfer is tortious ; that the ignorance of the person dis-
counting the paper, that it is unavailable in the hands of the party
offering it for discount, will not affect the question ; and that,
where the note is invalid in the hands of the seller, the maker can
avail himself of the defense of usury in the negotiation of the
note, and the defense will be complete upon establishing the fact
that it was transferred at a discount greater than that allowed by
law {ffall V. Wilson, 16 Ba/rh. R., 548).
This case is important, not oflly as showing what may constitute
usury in a given transaction, but uader what circumstances the
title of the holder of negotiable securities, which have been
obtained fraudulently, feloniously or without consideration, will

be upheld or sustained.
The present Supreme Court of the State of Iêw York decided,
in a later case than that of Hall v. Wilson, that where accommo-
dation paper is bought ionafide for a gross sum, which sum, or
calculation, gives more than legal interest, the transaction is
usurious, and that no recovery can be had against the parties to
the note, even for the amount actually paid, with lawful interest
that is to say, if there has been no fraud or false representation,
by certificate or otherwise, to mislead the purchaser and the ;
doctrine was clearly laid down that there is no real distinction, so

far as usury in its civil aspect is concerned, between buying and
discounting that the policy of the statute is equally defeated by
;
the one as by the other.

Eoosevelt, J., delivered the opinion of the court, and said " Is :
there any real distinction, so far as usury in its civil aspect is con-
cerned, between buying and discounting ? Is not the policy of
the statute equally defeated by the one as by the other ? It seems
to UB that it is. With the wisdom of the policy the courts have
nothing to do. It is for them to enforce it, wise or Unwise
unless the enforcement, as in the case of certificates, or all repre-
sentations of commercial paper, conflict with another rule of law
not yet repealed, that a man by way of defense,
shall not allege,
that he himself has been guilty of a falsehood, and is entitled to
be rewarded for the offense. The cage of oertificateg or represen-
'
45
354 LAW OF USTTRT.
tationsis an exceptional one, and of comparatively recent origin.
And even this exception, the adoption of which admits the

general rule to be otherwise, although sanctioned by several deci-
sions, has never yet been finally established in the court of last
resort. The general rule, just or unjust, that the purchaser of accom-
modation paper, without such certificate or representation, at a
higher rate than seven per cent, takes it at his peril, is too well
established to be now disputed " {Bassa/nge v. Boss, 29 Barb. B.,
576, 578).
The Supreme Court of the State of Alabama has held that a con-
tract between the plaintiff and the defendant in an execution
issued upon a judgment, by which the plaintiff agreed to delay
enforcing the collection of tê execution until the ensuing term
of the Supreme Court, that the defendant might take the case up
for revision, and the defendant, in consideration of the delay,
agreed to pay ten per cent on the.aniount of the execution, if the
case was affirmed, was usurious {Matlock v. Mallory, 19 Ala. I^.,
694).
In a case before the Supreme Court of N'orth Carolina, wherein
it appeared that an agreement was entered into, whereby the bor-
rower agreed to pay the lender the same rate of interest which
the latter was bound to pay a third person, and which exceeded
the legal ratd; the court held, that the transaction was usurious
{Dowell V. Vannoy, 3 Dm. B., 43).
And a case came before the Court of Chancery of the same State,
wherein it appeared that a bank in Iôrth Carolina agreed to lend
to an individual notes of a Virginia bank which were at a depre-
ciation in the market, below both specie and the notes of the bank
of North Carolina, and the borrower, by the agreement, was to give
his note at ninety days, to be discounted by the bank, and to be
paid in specie or in the notes of the bank making the loan. The
court held that the note given in pursuance' of this agreement
was void for usury, though the borrower stated, at the time,
that he could make the Virginia notes answer his purpose in
the payment of his debts to others {Ehr^ngliam v. Ford, 3 Ired.
B., 522).
The Supreme Court of the State of Iowa has held that a con-
tract to pay a certain sum of money for the extension of time on
2ii note, in addition to legal interest, is usurious ; and there can be
. ,
TRANSACTIONS HELD USURIOUS. "355
no doubt of the correctness of the decision (Werner v. SootSs

Admmist/rators, 17 Iowa R., 578).
The courts of Louisiana have held that, where a certain per cent
is charged for money advanced, and conventional interest is also
stipulated, the contract is tainted with usurious interest, and that
the principal only can be recovered {Payne v. Waterson, 16 La.
An. R., 239).
In the State of Kentucky the court held, where it appeared that
the creditor received his own note, not then due, at a discount of
more than legal payment of a debt due from the payee,-
interest, in
that the transaction wasAnd it was held in the same

usurious.
case that if the purchaser of a note, after the note becomes due,
charge the assignee a greater rate of interest than is legal on the
sum advanced by him, and it is paid, it is usury, whether the same
be paid in money or in notes of third persons (
Young y. Miller,
1 B. Monr. R., 54.0).
It is doubtful whether the doctrine laid down ia this Kentucky

case would be accepted, or the case itself recognized as authority
by the courts of any of the States at the present day. It is not
easy to see any difference in principle between the case in Ken-
tucky and the ordinary one of a bona fide transfer of business
paper, valid in its inception, at a discount from the sum secured to
be paid thereby; and it is well settled that there can be no usury
iu transactions of this kind. But the decision of the Kentucky
case was as above stated.
The Supreme Court of the United States, at a very early day,
made a decision in strict accordance with the one made by the
Supreme Court of North Carolina, in equity, reported in 3 Deve-
reux. The United States Supreme Court decided that if A. lend
money to B., who puts it out at usurious interest, and agrees to pay
A. the same rate of interest which he is receiving upon A.'s money,
the transaction is usurious between A. and B., and an indorsee of
B.'s note to A. may avail himself of the plea of usury {Lefoy v.
Oadsly, 3 GranoK's R., 180).

It was held by the old Supreme Court of the State of Kew York
that an agreement to pay more than legal interest for money loaned
on note, such agreement being made at the time of the loan, is
usurious, and renders the note void, though the note on its face be
for the mere amount lent, with legal interest only. On the trial
in the Court of Common Pleas, the judge charged the jiiry that
;
356 L-AW OF U8UBT.
if, at the making of the loan, it was agreed betvyeen the lender and
the defendant that he should pay more than seven per ce^t for the
use of the money, thp defendant would be entitled to their verdict
but if they believed, from the testimony, that the note w^ given
for the amount of money advanced, and the agreement to pay
extra interest was niade subsequently, with a view to obtain fur-
ther indulgence, such agreement would not affect the note, and
the plaintiff should recover. The jury found for the plain tilT;
the Court of Common Pleas refused to set the verdict aside, and
the defendant brought error. The Supreme Court did not contro-
vert the legal propositions contained in the charge ; but held that
the evidence clearly showed that the a-greement to pay more than
legal interest for the use of the money was made at the time of
the loan, and that the court should have so told the jury. The
judgment in favor of the plaintiff was, ther,efo;'e, reversed, and a
venire de novo ordered.
Savage, C. J., delivered the opinion of the court, and said:
" Usury is commonly an unconscionable defense, but it is a, legal
one ; and if proved, courts must sustain it. Usury was, in this
proved by the testimoiiy of Alfred "White ; but it is
case, clearly
supposed that this was answered by the testimony of Darrow. .
There no contradiction between them. Usury consists in the

is
corrupt agreement of the parties, by which more than lawful inte-

rest is to be paid. White swears to the agreement, and that the
note was given for the amount loaned. Darrow does not disprove
the agreement. He corroborates White, as far as he goes. * * *
It was proposed to ask a witness in court what he had already
sworn. In my judgment, the exercise of a sound legal discretion
required a re-examination of the witness. But, independent of
this ground (which I think sufficient), I am of opinion that the
court should have charged the jury that the inference of law was
that the bargain spoken of by Miss Jones to Wilson was the con-
tract of loan. No other had been alluded to " {Merrills v. Law,
9 Cow. E., 65-69).
After the decision in the Supreme Court, the plaintiff brought
error to the Court of Errors, where the judgment of the Supreme
Court was reversed, and that of the Common Pleas affirmed. The
latter court came to the conclusion that the Common Pleas put the
case correctly to the jury ; that the verdict was not without evidence
to sustain it 5 and that it could not, therefore, be legally set aside.
: ,
TRANSACTIONS HELD rjSUBIOUS. 357
The chaflcelter, in his opinion, said : "I am inclined to concur
with the chief juMiee in the view he has taken of the merits of
the case before €ie Court of Common Pleag ; hut it is evident the
attentioti of the justices of the Suprenle Court vfas not drawn to
the fact that the questions of law which might have been raised
for the eonsideration of thsit court were not presented in a form
which could authorize a reversal of the judgment on a writ of error;
The defense in the c6urt below was usury, and it is verj probable
that the strong feeling which always exists against such a defense,
t&gether with the fact that it Was set up to defeat a recovery on a
note given to a young femald, may have inducecJ the jury to find
a verdict for the plaintiff when they should have found in favor of
the defendant. But if no principle of law was violated by the
Court of Common Pleas on the trial, neither the Supreme Court
nor this court have any power to reverse their judgment on a writ
of error."^
Mr. Senator Beardsley, in his opinion, said "Usury is an odious
:
defense, and he who attempts to avail himself of it should be held

to strict proof; and if he has once had a fair trial, and the fact
fairly submitted to the jury, to adopt the language of one of our
judges' in ah analogoiis case', ' he shall not, with my consent, have

another.' This", I thinlt, accords With the' general view of our
courts, whes there is' evidence on each side and the question fairly
a question of fact. * * * The law in regard to usury was
correctly stated to the jury by the Court of Common Pleas, and I
do not understand the defendant below as excepting to the incor-
rectness of the chargie. If not, it is too late to take exceptions to
it in the Supreme Court or in this court " {Lcno v. M&rrill, 6
Wend. B., 268, 273, 274, 279, 280).
The doctrine is weU settled, upon the authority of the case last con-
sidered, and upon the authority of other cases that might be referiêd
to, that where there is a usurious agreement for the loan of
liioiiey, pursuant to which a note is given for the actual amount
of the money loaned, with legal interest, and the extra sum to be
paid rests in parol, or is put into a separate security, the whole
transaction will be tainted with usury, and the note given for the
true amount cannot be enforced.
The present Supreme Court of the State of New York declaT'ed
a transaction to be usurious, in which the following were the facts
The defendant ia August, 1855, applied to a broker in New York
358 LAW OF USURT.
for a loan of money to the amount of $10,000. He was told by

the broker that this amount could not be obtained upon the secu-
rities which he had to offer, being the mortgage in suit, but that,
in lieu of cash, notes or obligations payable at a future day might
be obtained for such mortgage. These notes could be sold or dis-
counted immediately, and thus the cash, which was the object of
the loan, obtained. The defendant assented to the arrangement,
and the negotiation resulted in his giving the bond and mortgage,
for the foreclosure of which the action was brought by the plaintiff,
to whom it was assigned. The bond and mortgage were originally
made for the purpose of raising a loan of money, and were con-
ditioned to pay $10,000 in one year, without interest, and payable
to James W. Elwell & Company, and given to them in exchange
for their notes for the same amount of $10,000, payable in six
months from the 4th, 6th and 9th of August, 1855, also without
interest. At the same time the defendant paid Elwell & Company
$500 as compensation for the advance or exchange of these notes
for the mortgage.
The action was brought to foreclose the mortgage, and the
defense of usury was interposed. The cause was referred to a
referee, who gave a judgment for the plaintiff, and the defendant
appealed from the judgment to the General Term of the Supreme
Court, where the judgmentwas reversed and a judgment entered,
declaring the bond and mortgage, usurious, and dismissing the
plaintiff's complaint with costs.
Emott, J., delivered the opinion of the court, and said :

" It is
unnecessary to discuss, because it is unnecessary to determine here,

whether giving one's own note or obligation in return for the note or
obligation of another can ever be regarded as a sale of credit.
This case presents unequivocally a loan. It was the declared and
known object of Fowler to borrow money. He obtained notes
payable in six months, which he could dispose of and convert into
money and he gave an obligation payable in a year, when
at once,
he expected makers of the notes, who would then be

to repay the
the lenders of the money. * * * The notes were loaned and
taken as money and in place of money, and were substituted for
money by the agreement of the parties.
Tlpon such a transaction the respective obligations of the parties
must be estimated at their nominal value ; that is, at the value
which they, import by their terms. The notes of the lenders were
;
TBANBACTIONS HELD USUBIOUS. 359

equivalent to a loan or advance of the money, payable by them
at the time when they were due. AH
which they had a right to
exact or receive for the advance of these notes, as and in lieu of
money, was interest at seven per cent from the time when they
would be compelled or be liable to pay them, until the maturity
of the obligation, which they received for them, and by which the
borrower was bound to repay them the amount of the advance
thus nlade. By the terms of these securities this would have been
about six months ; and as the amount was $10,000, the interest or
compensation for the advance would have been about $350. The
defendant's bond and mortgage did not provide for the payment
of this or any other compensation, but simply for the repayment,
after a year from its date, of the amount which Elwell & Company
were to advance, and did advance in six months. But Elwell &
Company demanded and received, ks a part of the transaction, and
as a compensation, for which the referee calls a loan of their notes,
the sum of $500 that is, for agreeing to lend and performing their
;
promise by lending Fowler $10,000 for the period of six months,

they received $500. I am unable to call such a transaction by any
other name than usury " ( Williams v. bowler, 22 JSbw. Pr. H.,
4, 6-8).
The old Supreme Court of the State of New York held the
following transaction usurious : M., to defraud D.'s creditors, gave
him his note on time for a horse ; D. procured two others to sign
it as makers, and before its maturity, J. bought it at a discount
beyond the legal rate of interest. J. brought his action against
the three joint and several makers to recover the amount of the
note, and they interposed the defense of usury. The court held
the note to be void for usury {Jblmson v. Morley, Lalor's
B., 29).
And in another case before the same court, it appeared that G.
apphed to B. for a loan, and B. iold him he would let him have
the money at ten per cent, on W.'s notes, if he would get them
whereupon procured W.'s notes in exchange for his own, and
Gr.
B. purchased them at ten per cent discount. The court held the
transaction usurious,and that the notes purchased could not be
enforced {Blodgett Wadham,s, Lalor's B., 65). In this case,
v.
had G. and "W. exchanged each other's notes for equal amounts,
without the knowledge of B. and then G. had sold W.'s note to
;
B. at a discount, W. could not have availed himself of the defense

860 J^^W OF USURY.
qf usury. But the fact that B. was privy to the whole transac-
•
tion rendered it usurious.
In the State of Alabama, a case came before the Supreme
Court in which it appeared that a contract for the loan of money
had been made between the paj-ties, upon which a note and surety
was taken, which, by the terms of the note, the money was to be
repaid in another State but there was no stipulation contained
;
in it as to the particular ra,te of interest to be paid. After the

maturity of the note, and the insolvency and death of the bor-
i;ower, the time for the paymênt, of the money was extended by
the sureties upon a new contract, under which a higher rate of

interest was charged upon the note, after its. maturity, than was
authorized by the laws of the State where it was payable. The
court held .that the transaction wag usurious {Ely v. McOlmkg,, 4
Sorter's. R., 128).
The following English case is given by Mr. Comyn in his woik
on Usury, which,, he work was in press:
says, occurred while his
Crocker, desiring to raise money, came to Lanham; and it was
agfeed between them that Lanham should buy of Crocker a debt
due to him from the. Duke of Norfolk, which exceeded the amount
of the sum advanced by Lanham and legal interest thereon. In
the deed of transfer,, it was made a condition that, if the duke did
not pay the debt within three months, Crocker should pay it^
together with. aU costs and charges, incurred. Upon the. trial at
Henshaw, before Mr. Sergeant Bosanquet, it was proved to have

been a sale, and not a loan ; and that the above condition, was
inserted, by the advice of Crocker's conveyancee. The learned
seigeant left it to the jury to say whether this was a usurious eon-
tract and they found, that it was.
; On an application for ai new
trial, the Court of King's Bench refused the rule, intimating theiif
opinion, that the contract was usurious on the, face of the deed
{pom. on Uswy., 282).
A very important case came before the Supreme Court of
Pennsylvania; quite recently, in which the transactiortwas held to
be usurious under the laws of that State. The action was brov^ht
to foreclose a niortgage,upon certain coal lands,, and other lands,,
made to secure the payment of $43,200, with legal interest. The
consideration of the mortgage was the purchase-price,i of the coal
lands, and a loan, of $18,000 in money. The defense was usury,
in that the mortgagee was compelled to buy the. coal laoids, which
:
TRANSACTIONS BELp USURIOUS. §61

he did not want, at an exorbitant price, in order to obtain the
Joan of $18,000, to relieTe himself from pressure, and to save
from sacrifice real estate of his own, part of which was of great
value but unproductive.
On the trial before the jury, evidence of the negotiation which
led to the bargain, the condition and circumstances of the mort-
gagor, the character and market value of the coal lands, as well as
the papers executed between the parties, were held to be appro-
priate proofs to maintain the issue, and were laid) before the jury.
The jury found for the plaintiffs, and assessed the principal and
interest unpaid on the mortgage at $4:2,682.87. But the jury
further found that, in point of fact, the mortgage sued om was
given to secure the payment of a loan of money at a rate exceed-
ing that established by law, and that, deducting such excess from
the mortgage debt,, the amount of the principal and interest of
said mortgage debt actually impaid was $25,799.2'4. Subsequently,
on consideration of thcf reserved points, the court in bane ordered
the entry of judgment for plaintiffs for the $25,799.24, with
interest from the date of the verdict. The plaintiffs thereupon
removed the case into the Supreme Court, where the judgment
amount was affirmed.
for the lesser
Woodward, J., delivered the opinion of the court, and said
"It was as essential to the legal ideaof usury, under the statute of
1723, that it should be coDtracted! for, as it is under our present
statute. And courts of justice, to get at the real nature of the
contract, would look beyond the forms in which the parties had
clothed to those extrinsic circumstances which would reveal the
it,
corruption- of the conUract. This- was done im Sooti v. Ll&ffd{9<

Peters, 418) Svans t. N'agiey (13 S-.
; &H:, 218) Ohamberledn ;
V. McGhmg (8 W. cfi 8., 31).
So, in coH'stTuihg the English statutes agaimst usury, it was

always held that no contract, however framed, however unlike a
contract for a loan or for interest it might apparently be, would
hold good, if the ultimate effect of it would be to secure more
than the legal rate of- itoterest for the loan of money. Mr. Smith,
speaking of the statute of 12th Anne^ ch. 16, in his work on Con-
tracts, 154, says, every conceivable means was used to evade the
statute. Sometimes a- transfer of stock, sometimes commission on

a discount", sometimes a substitution of one contract for another,
or several concurrent contracts were resorted to ; but the efiort of
46
862 LAY OF Dsusr.
the court was in every case to strip off the external covering of
form, and get at the intent and real import of the transaction, and
if that were tainted with usury the contract was held void.
* * * "We see nothing in the bills of exception to evidence of
which the plaintiffs have any reason to complain. They must
allow the transaction to be thoroughly investigated. The lawwUl
be satisfied with nothing else. * * * It is impossible for us
to doubt, now with the verdict before us, that this was a case
within the purview of the act of 1858 " {Fifssimmons v. Barnn,
4A Penn. B., 32, 40, 42).
And another case may be referred to which was declared to be
usurious by the present Supreme Court of the State of New York.
Prior to the act of 1851, chapter 122, authorizing the creation of
building associations, a building association had been organized,
and in 1849 the plaintiff became a member thjereof. The articles
of association provided for the " redemption " of its own shares
from those members who, were willing to stccept the lowest price
for them. The plaintiff " redeemed " his shares to the association,
in accordance with the. articles, and thereby agreed for a loan of
$3,500 by the association to him, to pay eighty-four dollars per
month be worth $600
until the shares of 'the association should
each, and he secured the payments by bond and mortgage on real
estate. By a calculation made it appeared that the shares would
not probably attain that value in less than from five to eight
years, and would be likely to be longer than that time in reaching
that value. It also appeared that the payment of eighty-four
dollars a month would pay the amount of the loan, with legal
interest, in about four years. The court held this to be substan-
tially a loan of money, and that the securities given were void for
usury, and must be canceled.

Bonney, J., delivered the opinion of the court, and said:
" TJpon these facts I am forced to the conclusion that these several
transactionsbetween the plaintiff and the building association,
upon which the said mortgages and agreements were made, were
money to the plaintiff at a rate of interest
intended to be loans of
exceeding seven per cent per annuni, and that such mortgages
and agreements are Consequently usurious and void " and the ;
judgment rendered to that effect at Special Term was affirmed

{Mehille v. The American Benefit Association, 33 Bwrb., B.,
103, 114, 116).
;
DOCTRINE OF TRE OASES. 363
Other eases might be referred to, hut probably those already

considered will be found to cover almost every conceivable case of
usurious transaction that is likely to arise.
CHAPTEE XXVII.
GENEEAL SUMMAET OF THE CASES EXAMINED THE DOOTEINE OT
THE COTIETS IN EESPECT TO ALLEGED USTTEIOUS TEAN8ACTI0NS.
Having examined a large number of cases in which the subject

of usury was involved and discussed, and in which a variety of
transactions have been declared by the courts as either subjected
to or exempted from the taint of usury, it will be useful and con-
venient to group together the sum of the cases, in order to ascer-
tain the settled rules by which a usurious transaction may be
determined.
At the time that Mr. Comyn brought out his little treatise on
Usury in 1817, comparatively few cases had arisen in the English
courts involving the question, and he aimed to go through with all
the cases then extant. He says "I am only aware of having omitted
:
one case, the principle of which is not very intelligible ; and as it
only arises upon an unsuccessful objection at nisiprius, no great

stress need be laid upon it. The sum of it is, that if a defendant
undertakes to pay the plaintiff the difference between taxed costs
and costs out of pocket, in consideration of time given for paying
the debt recovered and costs, it is not usury, Barnett v. Stone, 3
Esjp. IT. PC, 209 ;" {Com. on Usury, 155, note i).
The doctrine of the cases examined by Mr. Comyn, so far as it
extends, is about the same as of the later decisions and those cases
;
are pretty generally recognized as authority at the present day.

And, according to all of the authorities, the ingredients of a usuri-
ous transaction are, as they are laid down in previous chapters of
this work, so that it may be affirmed that to constitute usury
there must be, in the first place, a loan, either express or implied
and, according to the decisions in New York, the statute is appli-
cable only to those loans which are, in substance and effect, loans
of money.
But it has been declared that the word "loan," in this connec-
tion, must not be too strictly construed, for there are many cases
364 LAW oi> usunr.
among those hereinbefore considered, in whieh no loan originally

occurred, yet, by some subsequent agreement between the debtw
and creditor, usury was held to have been generated. And Mr.
Comyn well says that it should always be remembered that the statute
lays stress upon the word " forbearance," as well as upon the word
"loan." And however some of the older cases have been con-
strued, it appears clear,- fi-om the moderti' authorities, that where
money is owing upon any kind of contract, and forbearance is
given for such debt upon the condition of receiving, more than
is as much usury as if
the legal rate of interest, such forbearance
thesum of money had been absolutely lent upon w contract to pay
more than legal interest. "It is not necessary " (says an ancient
authority) "to the creation.' of a loami thai! moiley should be paid
on the one hand and received on the othrar'; for the circumstance
of a man's money remainiug in another' S'-hamdy in consequence of
agreement made for that purpose, Will equally constitute a loan "
{Roger v. Eckoards, Cowp. R., 113).
In such case, however, it is necessary that the debt be absolutely
incurred, and not merely resting updn an executory agreement)
the execution of which depends upon circumstances that may take
effect {Sfvm-i&r v. Mayoss^ 4 Br. Oh. R., 28)..
But, though forbearance upcm a debt incurred by any legal
means will give equal roora for usury, a distinction must be made
between a loan and a sale. For there can be no usury in a sale of
any description, provided it be real and not intended as a cover
for taking exorbitant interest. In case of an actual sale, the mere
circumstance of inequality of price will never bring the transac-
tion within the statute. And this rule applies as well to the sale
of "credit " as to sales of property, choses in action and the like.
The cases show that usury cannot be predicated of the use which
one person may be allowêd or authomed to na:a,ke of another's
credit, because credit, a " capacity of being trusted," is neither
raoney,. bonds, nor a chose in action. Credit may be a; benefit to-
the possessor as a means of procuring pro|)erty, but is not itself
recognized as property by the law. It cannot be loaned, for a loam

implies that the thing borrowed is to be returned, after a tem-
porary use, to the owner, in specie or in kind. The credit of
one person may be made available to another by gift or sale^ and

in no other way. Its value depends upon opinion, and is, of all
other things, perhaps, the most ea{)riciGUs and fluctuating. Bat a
DOCTRINE OF TEE CASES. 36.5
sale of credit no more within the prohibition of the statute

is
against usury than a sale of merchandise ; and no transaction that

is in good faith a sale can be usurious, because the important ele-
ment of a loaa is wanting as one of its ingredients. And, as

ibefore suggested, the New Tork courts hold that the statute of
usury of that State applies only to .a loan of money, or to a trans-
fer of something money, or for the purpose and as a means

else as
of obtaining money on time. Every loan which falls within the

New York statute is, therefore, virtually, if not in form, a loan of
money and the same rule is recognized in most of the other
;
States. Such loans are express where the money is advanced by

the lender, and implied where something else is parted with for
the purpose of obtaining money. And it has been repeatedly
held that every such transaction, the real object being to procure
money on time, no matter what fojm it is made to assume, is a
loan within the statute' of usury.
happens that the transaction assumes the foira of a sale
It often
or exchange, when, in point of fact, it is a loan in disguise ; in

which case it is always held to be within the intent of the statute.
A loan may be disguised in the form of a sale of goods or other
property ; and it has been held that a transfer of debt and credit,
time being given, is a loan. So there may be a loan, part in money
and the residue by a sale of property ; or a loan disguised by a
sale of an annuity; or a loan made in terms at legal interest, but
usury disguised in the form of dry exchange ; or the loan may be
made at legal interest, in terms, when the usury is reserved in
some collateral matter ; or usury may be disguised in the sale of
depreciated paper at par. All these peculiarities relating to the
by the authorities hereinbefore
matter of a loan are fully illustrated
examined. And Lord Mansfield, " in all ques-
in the language of
tions, in whatever respect repugnant to the statute, we must get at
the nature and substance of the transaction the view of the par- ;
ties must be ascertained, to satisfy the court that there is a loan

and borrowing and that the substance was to borrow on the one
;
part, and to lend on the other" {Flayer v. Edmards, Gowp. M.,
112). The authorities considered also show that whenever the

transaction is in the form of a sale, and it is alleged that it is a
disguise for a usurious loan, the party impeaching it must, by evi-
dence, remove the covering, and exhibit the transaction as a loan
of money. AAd it spmetimes happens that parties adopt the form
366 LAW OF USURY.
of a sale, when mortgage to secure

in truth the real transaction is a
a usurious loan and there is frequently great difficulty in deter-
;
mining whether a contract was intended by the parties as a mort-

gage or as a conditional sale. In such cases it seems to be a gene-
ral rule that where the agreement is made upon an application for
the loan of money, the court, for the purpose of preventing usury
and extortion, will construe the agreement to be a mortgage, in
case the person to whom the application for a loan is made agrees
to receive back his money and interest, or a larger sum, and to
reconvey the property within a specified time, whatever form the
writings may be put in, if the real object appears to have been a
loan of money. In such case, also, the relative values of the
property and of the price actually paid or advanced are to be taken
into consideration, to determine the intent of the parties ( Vide
Robinson v. Cropsey, 6 Podge's R., 480).
So, also, it may sometimes happen that the transaction may
assume a form which may induce suspicion, though the parties
may have been very wide of any usurious intent. In such case
the question of a culpable intention must always be open to the

opinion of a jury ; while it is the exclusive province of the court
to decide as to the legality of the transaction itself. When more
than the legal rate is received or bargained for by the terms of the
no doubt can exist as to the fact, and it matters not
contract,
whether the parties knew that they were engaged in a usurious
transaction or not it is ; all the same ; but where a contract has
been made which, though it be of a suspicious aspect, may yet by .
be fair and honest, it will be necessary to call upon a

possibility
jury to determine its character; and the authorities prove that
where a transaction is susceptible of two constructions, one favor-
able to the innocence of the parties and the other against its legality,
the transaction will be upheld. '
The authorities examined clearly hold, also, that usury can never
be predicated upon a loan of chattels, unless the transaction is a
cover for a loan of money ; if the transaction is proved to be a
disguise, as in some of the cases examined, then it may be declared

usurious. And the only criterion by which to detect usury, where
anything other than money is loaned, is the market value of such
thing,and the consequent gain to the lender in charging or obtain-
ing more than such value ( Vide Mumford v. Tfie Americcm Life
Insurance and Trust Company, 4 iT. Y. R., 463). If the court,
;
BOCTRINB OF THE CASES. 367

in looking at thewhole transaction, can see that the value secured
to the vendor was in good faith but the price of the thing sold or
exchanged by him, there can be no usury, whatever the price may
be, or the imode of its reservation but, where the object of the
;
parties is a loan of money, and something else is substituted for it,

under the form of a sale or exchange, the principal of the loan is
held to be the value in money of the thing substituted, and any
consideration paid or reserved beyond such value will be considered
as interest for forbearance ( Vide Dry Dock Compcmy v. The
American Life Inswrcmce cmd Trust Company, 3 N. Y. R., 344).
But the doctrine of all the authorities examined is that, in order
to constitute usury, the first requisite is that there be a loan, express
or implied.
Again, it may be affirmed, upon the authorities considered, that
in order to constitute usury there must be, in the second place, a
contract or understanding that the money loaned shall be returned
at all events, without substantial contingency or hazard. For, if
the return of the principal with interest, or of the principal only,
depend upon a contingency, there can be no usury ; because that
which, may never be received cannot be said to be forborne for
any given time. But if the contingency extend only to the inte-
rest, and the principal be beyond the reach of any hazard, the
lender or f orbearer can, in such case, lay no claim to interest above
the legal rate, without, as a general rule, being guilty of usury
although a distinction is to be observed between a contingency
merely aifecting the interest, and an option which the debtor has
of defeating the payment of interest by a performance of some act
stipulated for at the creation of the contract ; for, when such option
is given, and the creditor either neglects or refuses to avail himself
of such condition, the law insists upon his paying such additional
interest, as a penalty for his neglect or refusal. This doctrine is
abundantly illustrated by the authorities examined.

Upon the consideration of the hazard which affects the princi-
pal, the advance of money by way of insurance, bottomry, post
obit, or annuity has been sanctioned by the courts. But in all
these cases it must appear that no usurious transaction con- is
cealed beneath such as are thus favored by the law, for then no
favor will protect the contract the substance must be
; taken into
consideration and any usurious intention will vitiate an insur-
;
ance, or bottomry, ov post obit or an annuity, as much as if there

368 LAW OF USURT.
had been no such disguise assumed by the contract. Among the

cases examined will be found transactions in the form of insurance,
bottomry, post obit, and annuity, some of which have been upheld
as being free from the taint of usury, and others which have been
declared to be simple shifts, or disguises for the purpose of con-
cealing the taking of illegal interest, and hence usurious. . But
all the authorities agree that to constitute usury there must be a
loan, and that it is essential to a loan that the principal must, at
all events, be returned. No particular rules in this regard, by
which the character of the transaction is to be determined, can be
extracted from the cases ; and yet an examination of the cases
hereinbefore referred to will enable the student or the practi-
tioner to ascertain the view which the courts have taken of trans-
actions in the form of hazard or contingency. Especially will he
have the benefit of the judicial discussions upon the subject, and
the rules which have been laid down by which bottomry and the
like may be determined, where the money lent is at the risk of
the lender, or the repayment of the principal is at hazard, so as
to enable the lender to take more than the legal rate of interest,
and not come within the provisions of the statutes against usury^
So also it may be affirmed, in the third place, upon the authori-
ties considered, that in order to constitute usury there must not
only be a loan and a contract that the money loaned shall be
returned at all events, but that it shall be returned with more

than lâl interest.
This illegal or exorbitant interest may not be received m
reserved in the form of interest necessarily. The authorities
show that it may be included in the principal secured, or it may

be paid or agreed to be paid as a distinct bonus ; and the various
ways by which this result raay be attainted a^-e fully disclosed in
the authorities examined. For example, where, upon the loan of
money at an illegal rate of interest, separate notes are taken, one

for the sum loaned with legal interest, and the other for the excess
of interest, both notes are infected with usury. Or where, on

such loan of money at an exorbitant rate of interest,, a note is
given for the sum loaned with lawful interest, and the excess of
interest is agreed to be paid by parol, the whole transaction is
same extent as though the whole, principal and
nsxirious, to "the
unlawful interest, had been secured in one note or other- security.
So also the authorities show that illegal interest may be reserved
DOCTRINE OF THE CASES. 369
in the sale of pergonal property, choses in action, in the transfer
of stock, and in the esfchange of personal securities. Indeed, it

matters, not as to the form the transaction assumes, provided the
result is that the lender by the agreement, in fact, reserves, to
himself more than the legal rate of interest for the use of his
money, it is all tlie same if the transaction contain the requisites
;
of usury, it will be considered usurious. The question in every

such case is, whether the lender gains more than the lawful rate
of interest for the use of his money.
Yet it fully appears that, where trouble or expense or incon-
venience is sustained by the party advancing the money, the law
allows qf a reasonable compensation for this, in addition to the
interest becoming due ; as in the case qf brokerage, or in the
negotiation of bills of exchangp. Ap.d though a slightly excessive
interest may 'be received where the lawful interest is paid in
advance by way of discount, or is received before the expiration
of the time for which the principal is forborne, yet the mercantile
custom of discounting bills of exchange has long been sanctioned
by the courts ; that is to say, unless in a given transaction the

doctrine is carried into the extreme, so as to enable a party to
advance g,nd receive a large sum of money without any adequate
forbearance ; and this more especially where the character of the
parties is other than mercantile. By the older authorities, it
appears that, on discounting conimerQial paper, none but banking

institutions could exact the payment of interest in advance but ;
the later authorities have well settled the principle that, upon the
discounting of commercial paper not having a longer time to run
to maturity than the notes and bills which are usually discounted
by bankers, interest on ,the wkole amount of principal agreed to

be paid at maturity, not exceeding the legal rate, may be taken
in advance. The doctrine which these authorities establish is at
variance with the natural reading of the statute, and the practice
which it sanctions seems to stand altogether upon the ground of
judicial decision and yet it does not stand less firmly than it
;
would do had the sanction of legislative authority. At all

if it
events, the principle is well established by the decisions, and has

been uniformly acted upon for a periqd of over fifty years, and
during that time has been frequently affirmed by the highest
courts qf the country.
And sq, also, it may be affirmed, in thp fourth and last pl3,pe,
47
;
370 LAW OP usuet.
upon the anfhorities examined, that in order to constitute usury

there mlist be a corrupt intent to take more than the lawful rate
of interest for the use of the money loanedl This corrupt intent
is declared by the gtavamen of the
authorities to be really the
offense of usury, without which no usury can exist and this is ;
not unfrequently the most important subject of inquiry in the case.

The authorities examined establish the principle that the agreemeht
to take more than lawful interest must be with the full consent and
knowledge of the contracting parties ; otherwise it cannot be said
that there was a corrupt intent to evade the statute. To constitute
usury there must be an illegal agreement, and the authorities clearly
show that this cannot be predicated of a case in which the excess
of interest was the result of accident or inadvertance, without any
knowledge that more than the legal rate was secured by the con-
tract. Upon this principle, a mere mistake in calculation is never
held to be usury. The authorities unifdrmly hold, however; that
where a transaction is entered into, which is, in point of law,
usurious, it will not avail the parties that they were ignorant of the
law, provided they entered into the contract with their eyes open.
It is only excusable mistakes offoot that will justify the agreemSrit
to reserve more than legal interest ; and some of the cases herein-
before referred to have held the contracts involved to be usurious
in law, whatever the intention of the parties may have been proved
to be. But nothing short of a corrupt and illegal contract in vio-
lation of the law will constitute usury ; and, hence, there can be
no usury where the contract is not, in point of fact, what the par-
ties designed it should be. And the authorities show that this
principle is carried to the extent that both parties must be impU-

cated in the. corrupt intent to evade the law. It is not enough that
illegal interest is reserved with the knowledge and intent of the
lender simply both lender and borrower must be cognizant of the
;
facts, and intend the effect, of the agreement which they have
entered into and this corrupt intent of the parties is always a
;
question of fact for the jury, or of the court trying the case in
place of a jury.The authorities examined also demonstrate that
when a contract for money, legal and innocent in itself, is once
made and consummated, it cannot be made usurious and illegal by
any subsequent transactions of the parties. These subsequent
transactions may of themselves be illegal and forbidden by law
but they cannot impart the taint and the consequences of usury to
DOCTRINE OF.TBE CASES. 371
an antecedent agreement fair and just and upright in itself. If

the obligation under it is topay a debt, the obligation, with the
legal rights resulting from it, remain in all their force, and cannot
be discharged by engrafting upon it some subsequent agreement
obnoxious to the' chalrge of usury. If the subsequent agreement
has the effect to annul and rescind the antecedent contract, that is
quite another thing; and yet such a case very seldom occurs.
And so long as the antecedent contract remains in force, usury
cannot be imparted to it by the subsequent agreement. And hence
the authorities show that when a usurious security has been given to
take up an antecedent security which was valid in its inception,
and an action is brought upon it,- to which the defense of usury is
interposed, sometimes the plaintiff will be defeated in his action

upon the usurious security, but permitted -to recover, vn the same
aoPion, upon the original contract which constituted the considerar
tion bf the one held to be tainted with usury.
The authorities examined also settle the rules by which interest
must be calculated, and the time which constitutes the year, and
the aliquot parts of a year; and show in what cases the transac-
tion will be declared usurious, because the parties may have reserved
interest in violation of these rules. They also declare that every

instrument which upon its face reserves more than legal interest is
prima facie usurious ; but even in those eases it is sometimes held
that it is competent for the plaintiff to reTpel'thia prima facie
evidence of a corrupt agreement by proving that
' more than the
was -reserved by mistake, and contrary to the
legal rate of interest
intent of the parties and in some instances where a trifle more

;
than the legal interest has been reserved by the instrument, the
courts have held the transaction free from usury, upon the maxim,
de mvnimis non curat lex.
The foregoing are the principal points settled and illustrated by
the authorities examined but the points are elaborated, and every
;
aspect of the question will be found to be discussed in the opinions,

and the doctrine of the cases has been extracted in the con-
them in the preceding chapters,
sideration of
372 LAW OF USURY.
CHAPTEE XXYin.
HOW USmtT LAWS AEE C0N8TEUED BY JUDICIAL TEIBTOALS —
DIFFERENCE BETWEEN REMEDIAL AND PENAL STATUTES USUET —
LAWS, SOMETIMES PENAL AND SOMETIMES REMEDIAL, AND AEE TO
BE CONSTRUED AOOOEDINGLT THE CONSTRUCTION MUST BE SEN-
SIBLE USURY LAWS NEVER RETROACTITE.
In some respects laws against usury are regarded as peculiar,

and they are viewed by tlie courts in a little different light than
are the enactments relating to many other subjects. It may there-
fore be well to note, in a few brief passages, the manner in which

these statutes are construed by the courts.'
It has been shown, in a previous chapter, that the general rule
in respect to the payment of interest is, that it is to be paid on
contracts, according to the law of the place where they are to be
performed, in where interest is expressly or imphedly to
all cases
be paid so that the question whether a contract is usurious or

;
not, depends not upon the rate of the interest allowed, but, upon
the validity of that interest in the country where the contract is
made and is to be executed. And a contract made in one place
and payable in another may be-made to draw interest according
to the legal rate in either place. In a word, it may be laid down,
as a general rule of the common law that the lex loci contractus
will govern, as to the rule of interest, in accordance with the doc-
trine of the civil law. But if the place of payment or of perform-
ance from that of the contract, then the interest may
is different
be validly contracted for at any rate not exceeding the ratp allowed
in either place. The rule and all of the embarrassments found to
attend it was fully considered in the appropriate place, and it is
not needfal to dwell upon the subject here ( Vide wnte ch., 7). But,
with respect to the construction to be put upon the different
statutes of usury, very little has been said; and some remarks
upon that particular phase of the subject may be proper in this
place.
It has been truthfully remarked that there are subjects of legis-
lative regulation where no one, from reading the statutes, could

even guess what was the actual state of the law on those subjects.
It is a fact that the courts have sometimes gone very far toward
taking the place of law-makers and occasionally the provisions
;
CONSTRUCTION OF- USXTRT LAWS. 373
of the laws against usury have been construed in such a way as to

well-nigh destroy their effect. But it is best first to affirm that
at the present day the current of authority is in favor of reading
statutes of usury, as well as all others, according to the natural and
most obvious import of the language, without resorting to subtle
and forced constructions for the purpose of either limiting or
extending their operation. It seems to be now understood that
courts cannot correct what they may deem either excesses or omis-
fiions in legislation, nor relieve against the occasionally harsh
operation of statutory provisions, without the danger of doing
vastly more mischief than good. This is, certainly, the appropriate
sphere of action for every court. Where the plain and unequivo-
cal language of the law is rigidly followed, there are, to be sure,
a few cases of hardship; but let it be once imderstood that
statutes are not to be limited in their operations by over refined
and artificial interpretations, men are able to understand and
govern themselves by the law of the land, and an incalculable
amount of legal controversy is thus avoided.
In the construction of astatute, it depends much whether it is
remedial or penal. Remedial statutes are those which are made

to supply such defects, and abridge such superfluities in the common
law as arise either from the general imperfection of all human
laws, fi-om change of time and circumstances, from the mistakes
and unadvised determinations of unlearned (or even learned)
judges, or from other sources whatsoever. Penal statutes are those
which subject or render, the party liable to a penalty for a viola-
tion of its provisions.
Statutes that are remedial and not penal, the courts hold are to
receive an equitable interpretation by which the letter of the act
issometimes restrained and sometimes enlarged, so as more to
meet the beneficial end in view, and prevent a failure of the
remedy. They and uUra, but not
are always construed liberally,
contra, the strict letter. Penal statutes must be construed strictly.
So rigidly has this rule been adhered to that an ancient Eng-
lish statute having enacted that those who were convicted of stealing
horses should not have the benefit of clergy, the judges con-
ceived that this should not extend to him that should steal but one
horse, and, therefore, procured a new act for that purpose in the
following year. Since that, however, it was decided that when
statutes use the plural number, a single instance will be compre-

'
374 i-4»r OF usuBT.
hended. Thus, an English statute enacted that it should be felony

to steal any h&vik notes, and it was determined that the offense was
complete by stealing one bank note {HasseVs case, Leach! sOth
'
'
• '"
Loajd, 1). ' •
If a statute inflicts a penalty for doing an act, the penalty

implies a prohibition and the thing is unlawful, though there 'be'n©
prohibitory words in the statute. And this rule has been applied
to the case of a statute inflicting a penalty for making a particular
contract^ such as a simoniacal or usurious contract and Lord' Hdt ;
held that the contract was void under the statute, though there
was a penalty imposedfor making it {Bartlett v. Viner, Garth. R.,
251; S. C.,8kmder'sS.,&22). •>
The principle is now settled that the statutory prohibitidn is
equally efficacious, and the illegality of a breach of the statute

the same, whether a thing be prohibited absolutely or only under! a
penalty ( Vide Bv/r-sley v. Bignold, h Bcirn. <& Aid. R., 335 ; The
8tate \.FUteh&r, hN. E..R.,'m; \ Kent's Com,., 467).
The statutes of usury in some instances are strictly penal, and
in otheM not. In those States where the reserving of usuribuB
interest involves, by way of penalty, the' loss of the whole' debt, ^
or even the lawful interest upon th,e principal, the statute is penal,
and must be construed like other statutes which are penal in theii-
nature although it has been declared by judicial authority that
;
the rule giving to defendant, in favor of life or liberty, the benefit of

every reasonable doubt, should not be extended to civil actions in
cases of alleged usury (Porfe?- y. Mownt, 45 Barb. M., 422^ 427).

"Whenever usury is an offense, it is so because it is malum pro-
hibitum, rather than malum in But it is declared that the
se.
distinction between statutory offenses, which are mala prokihita

only, or mala in se, is now exploded, and a breach of the statute
law, in either case, is equally unlawful, and equally a breach' of
duty and no agreement founded on the contemplation of either
;
class of offenses will be enforced at law or in equity {Aid>ert v.
Maze, 2 Bos. c& Pull. li., 371 ; Gannon v. Bryce, 3 Ba/m. &
Aid. R., 179 Daniels, ex parte, 14 Yes. R., 191).
;
A very important case came before the Circuit Court of the

United States for the district of Maryland, and was decided by
the learned chief justice of the United States Supreme Court in
1857, which involved the construction of legislative enactments
upon the subject of usury and on account of the distinguished
;
;
CONSTRUCTION OF USURY LAWS. 375

ability of .the jurist who decided it, as well as the novel character
of the case, a full statement of the authority may well be inserted
in this place.
The action was brought by the indorsee of a bill of exchange,
.
drawn upon the defendants, and accepted by them, for $1,000.

The defendants pleaded that the bill was given to secure the pay-
ment of money loaned by the plaintiff to the payee of the biH,
upon which an interest exceeding the legal rate was reserved
and that such contract was usurious, and the plaintiff not entitled
to maintain an action upon it.- To this plea the plaintiff demuiTed
and the question submitted to the court on the pleadings was,
whether tmder the Constitution of Maryland, adopted in 1851, an
action could be maintained upon a contract for the loan of money,
where an interest of more than six per cent was reserved or
received.
'
In order to understand the decision of the court, it is necessary
to observe that the Constitution of the State contained a clause in
the following words " That the rate of interest in this State
:
shall not exceed six per cent per annum, and no higher rate shall
be taken or demanded ; and the legislature shall provide by law
all necessary forfeitures and penalties against usury " {Const, of
1851,ari!. 3'y§49).
By the third article of the declaration, all acts of Assembly in,
force on the first Monday in Ifovember, 1850, which had not

expired at the adoption of the Constitution, and were not altered
by it, were continued in force, subject, nevertheless, to the revision
of,and amendment and repeal by the legislature of the State.
The acts of the Assembly, material to the question, which were
passed previously to the adoption of the Constitution, were those
of 1704 and 1845. The' first section of the act of 1704 declared
that no person should exact or take above the rate of six per cent
per annum, upon the loan of any money, goods or merchandise,
or other commodity, to be paid in money; the second section
declared that all contracts by which a higher rate of interest was
received should be void and the third section infiicted penalties
;
for taking or receiving more than the rate of interest limited by

that act. The provisions of this law were materially changed by
the act of 1845 ; by that act the lender was entitled to secure the
amount actually loaned, with six per cent interest upon it, although'
;
'376 I"iW OF USURY.
tihe contract was usurioiis, andstipulated for a higher interestj and

it repealed altogether the third section of the act of 1704.
The act of 184:5 was still in force when the Constitution was
adopted, and the point in issue between the parties, upon the
•
demurrer, was whether the provisions of this act were inconsis-

tent with the clause of the Constitution before recited, and there-
fore repealed by it. This recitation presents fairly the question
before the court in the case.

Taney, C. J., in his opinion, said :
" In determining this ques-
tion, thewisdom or piolicy of usury laws is not a subject for the

consideration of the court that was a question for the people of
;
Marylaind, when they adopted the Constitution. It is the dnty of

the court to carry into effect the provisions of that instrument
according to its true intent, to be gathered from its own words
and referring to the previous legislation of the State only so far
as it may contribute to illustrate the meaning of doubtful or
ambiguous language, if any such be found in the Constitution,

and to ascertain what previous acts of Assembly are still in force.
It would be difficult, we think, to raise a doubt as to the mean-
ing of the prohibitory part of the section of which Ve are speak-
ing. It declares ' that the raite of interest shall not exceed six per
cent per annum, and no higher rate shall be taken or demanded.'
These words are free from all ambiguity they prohibit in plkjn, ;
positiveand direct terms the taking or demanding of more than

"six per cent interest ; and on this point it refers nothing to future
legislation. The makes the prohibition, and
Constitution itself
all future legislation must be subdrdinate and conformable to this
provision. "Whoever takes or demands more than six per cent

while this Constitution is in force, does an unlawful act an act ;
forbidden by the Constitution of the State. . Nor do the words

which follow qualify or restrain, in any degi-ee, the meaning of
the words above quoted ; they declare that ' the legislature shall
provide by law all necessary forfeitures and penalties against

usury.' itfow, usury consists in taking an interest for money
- above that allowed by law the taking of more than six per cent,
;
is and the words last quoted treat it as an offense,

therefore usury ;
and direct the legislature to punish it with penalties and for-

feitures. The words do not merely give the power tb punish ;
they are mandatory, and. make it the duty of the legislature to

punish disobedience to that provision by forfeitures and penalties.
CONSTBTfOTION OF USVSY LAWS. 37*
Certainly, if the taking or demanding of more than six per cent

was not intended to be absolutely prohibited by the preceding
part of the section, thel-e would be no propriety in commanding
it to be punished.
" The words last quoted, therefore, do not qualify or restrict the
meaning of the preceding words on the contrary, they show that
;
the framers of the Constitution, after fixing the amount of interest

which a party might lawfully take or demand, proceeded to make
that provision more effectual by requiring the legislature to enforce
it, and to inflict forfeitures and penalties upon any one who should
thereafter take or demand an amount of interest exceeding that

prescribed by the Constitution. This being the evident meaning
of the language of this section, can a contract by which a higher
interest is taken or demanded be inferred in a court of justice'?
It is true the Constitution does not say, in express terms, that such
a contract shall be void, nor was such a provision necessary to
invalidate it ; for it is well settled, by a multitude of decisions in
this country and in England, that a contract to do an act forbidden
by law is void and cannot be enforced in a court of justice. We

do not stop at preseiit to refer to judicial decisions to support this
proposition ; many eases to that effect are cited in the opinions
delivered by the Supreme Court of the United States in The Bcmk
of the United States v. Owens (2 Peters, 527) and we are not ;
aware of any decisions, in any court, in which a contrary doctrine

has been held. Indeed, in a State where the legislative, executive
and judicial departments are separated, it would render all law
uncertain and ineffectual if the judicial power enforced, in whole
or in part, the performance of a contract to do an act which is
altogether forbidden to be done by the Constitution or laws of the
State. And as the Constitution has forbidden the taking or demand-
ing of more than six per cent, no contract, made in this State, can
be enforced where a higher rate of interest is taken or demanded
by the contract.
" This view of the subject is fully supported by the decision of
the Supreme Court in the case of The Bank of the United States
V. Owews, hereinbefore referred to. * * * The absence of any
provision inflicting a penalty (say the Supreme Court) does not
give the party a right to maintain an action on the contract, if the
law forbids the contract to be made ; and the reason of the rule
laid down is, that the contract being forbidden, the party can
'
48 . .
378 L^W OF VSURT.
acquire no legal right under it, and consequently cannot maintain
an action in a court of justice to enforce- it. This incapacity to

maintain an action upon it is no forfeiture or penalty^ for he acquires
no right under it, and therefore there is nothing to forfeit. The
money he loans is not forfeited ; for if he chooses to rely on the
promise of the borrower, and the borrower repays him the money,
he. may lawfully keep it. It is not forfeited to the State, nor to
any one else. But a court of justice cannot lend its aid to recover
it, because the contract for the loan is one entire thing, and con-
sequently is altogether invalid or void ;and it would be contrary
to the duty of a court of justice to assist a party in consummating
an act which the law forbids. The absence of any penalty, there-
fore, isno argument in support of this a,ction.
" But in this case there is something more than the absence of
penalties and forfeitures. It is made the duly of the legislature
to inflict them; and the prohibitory clause of the Constitution
must be construed now in the same nianner and have the same
effect as" if the legislature had performted' the duty enjoined upon
it. * * * The act of no future legislature can alter the mean-
ing of the words used in the Gonstitution;' they remain the same,
and must always be construed and admiuistered in courts of justice
according to their legal import as they stand in that instrumentj
whether future legislatures do or do not obey its mandates and
pass laws to enforce its provisions. It follows from what we have
. said that the first four sections of the act of 1845 are no longer in
force. * * * The act of 1845 does not, therefore, prohibit a

usurious contract, but sanctions and supports it to the extent above
mentioned. The on the contrary, by the prohibitory
Constitution,
words used in it, makes the whole contract illegal, and thereby
incapacitates the party from maintaining a suit upon it for the
money he actually loaned or any part of it ; andj moreover, treats
the taking or demanding more than six per cent as an offense, and
commands the legislature to provide forfeitures and penalties against
it. The provisions of this act of Assembly, and those contained in
the Constitution, are consequently inconsistent with each other,
and the former is repealed. In relation to the act of 1704, the
plaintiff claims nothing under it but inasmuch as the first section
;
of that act, like the Constitution, prohibits the taking of more

than six per cent, and the second section contains an express pro-
vision making void the contract when more is taken, the plaintifi
;
CONSTRUCTION OF USURY LAWS. 379

contends that the omission of the second provision in the Consti-
tution proves that it was not intended to make void the contract^
but to leave it as provided for and legalized in the act of- 1845.i '
" But it is evident that the second section of the act of 1704, like
siiflilar provisions in the English statutes against, usury, was intended
to remove any doubt which might be raised upon the words exact '
or take,' and to show that the prohibition was intended to apply
tb contracts in which usurious interest was reserved, to be. paid at

a future day, as well as to cases in which it was actually exacted
anditaken or received at the time of the loan. Itwas introduced
for greater caution, and to prevent nice distinctions upon the words
used. This is constantly done in acts of legislation and the omisr
;
sion in the Constitution of a provision of this description,, con-

tained in a previous act of Assembly, would hardly j ustify the court
in inferring that it was intended to authorize an action on a con-
tract which the Constitution itself prohibited.
"In .expounding an instrument so solemn and deliberate as a

Constitution containing the fundamental law of the State, we are
hardly at liberty to suppose that either those who framed, it or
those who adopted it intended to recognjze or sanction the prin-
ciple that, an action might be maintained upon a contract to do an
act which the law forbade. *! * * The Constitution does not
use the prohibitory words of the first section, but provides that no
higher rate shall be ' Now, these words
taken or demamded^
clearly embrace a contract by which usurious interest is to be paid
at a future day, as well as contracts in which it is taken and
received. It does not mean usurious interest demanded in the

negotiation previous to the loan, but demanded by the contract
itself when actually, made. And if so demanded,- it is evidently
included in the constitutional prohibition, even although the words
'
exacted and taken ' should be regarded as confined to the actual
receipt ''
{Dill v. Ellicott, Tomey's dr.. Ct. Deo., 233, 236, 239,
'
241.) ,
: The doctrine of this ease is, that. a contract to do an act forbid-;

den by law is void, and cannot be enforced in a court of justice
that there can be no civil right where there is no legal remedy,
and there can be no legal remedy for that which is itself illegal.
And this doctrine was applied to the case of a usurious contract
in those States where the law is similar to that which was in force
in Maryland at the time the case at bar was decided. But the
380 LA'W OF USURY.
decision and opinion of the distinguished chief justice is valuable

principally, for the rules laid down by which the statute should be
construed.
And it may he added that a close construction will be given to
statutes which work forfeitures or confiscations of property. And
all gtaitutes in derogation of the common law and contrary to
the general policy of the public are to be strictly construed ; at
the same time full effect will be allowed to the legislative will,
and where the words of a statute are plainly expressive of an

intent, the interpretation must be in aocordamce therewith ( Vide
Bradhv/ry v. Wagenhorst, 54 P&rm. R., 180 ; Esterley's Appeal,
lb., 192 United States v. Athjens Armory, 35 Ga. It., 344).
;
So, also, it may be affirmed that it is well settled that every

statute must be held to be prospective and not retroactive in its
operation, unless a different effect is clearly to be gathered from
its terms, even though general language is used which might
include past transactions {State v. AudAtor, 41 Mo. JR., 25 Fim,- ;
Tiey V. Ackermcm, 21 Wis. B., 268). In respect to usury laws,

however, the legislature of the States, in passing their general acts
upon the subject, have inserted a clause which puts it beyond
doubt that the statutes are not retrospective, and it is safe
always to act upon the principle, in th* construction of statutes,
that the act must receive a sensible construction, even though
such construction qualifies the universality, of the language ( Yid^
People V. Ad/riene, 39 III. B., 251).
It has been held that although a statute, simply modifying the
rate of interest or the penalties for usury, cannot apply to a loan
made before the act took effect, it may apply to a subsequent
agreement by which the parties extend the time for payment of
the loan, the terms remaining unchanged {Story v. Kimbrough,
3 Oa. E., 21). And the Supreme Court of Illinois has held that
a law simply reducing the penalty for usury, as prescribed by the
law as it existed at the time the contract was made, and permitting
it to be enforced to the extent that it was lawful at that time, does
not violate the obligation of a contract {Parmelee v. Zawrenoe,

48 lU. B., 331 ; Drake v. Latham, 50 ib., 270).
EFFECT OF USURY. 381
CHAPTER XXIX.
EFFBOT OF USTTET UPOlsr THE CONTEAOT OE SEOUEITT TAINTED BY IT
WHEN THE rSUEIOTJS SEOUEITT IS VOID AS BETWEEN THE PAETIE8
— WHEN AS TO STTBSEQrENT HOLDEES OE ASSIGNEES.
The effect of usury upon a contract or other security, as between

the parties to the usury, is oftentimes quite different from what it
is as to strangers to the original transaction. In some instances,

as in New York, the statute itself declares, in substance, that every
conceivable security or obligation, except bottomry and responden-
tia bonds and contracts, founded in usury, is ipso facto void.
When such is the law, it matters not whether the usurious instru-
ment is attempted to be enforced by the usurer himself or by a
subsequent owner or holder of the usurious instrument. In either
case the contract is void and cannot be enforced. And in all cases
where the usurious transaction is absolutely void, it can never be
rendered valid by the subsequent act of the parties ; and it matters
not whether or no the contract be carried into execution so as to
render the receiver amenable to the penalty of the statute, the
usurious contract or security is extinct at its inception.
But when the statute declares the transaction, under certain cir-
cumstances, simply usurious, it may be void as to the usurer him-

self,but valid in the hands of a hona fide holder or assignee.
Sometimes the statute declares a usurious contract void as between
the original parties, but makes an exception in favor of l)ona fide
holders without notice of the usury at the time of the transfer.
And what shall be the effect of
in other cases the statute declares
the usury upon the contract or security, by making it valid for the
true amount of the money loaned, or the debt secured, and void as
to the usury. But it may be laid down as a general proposition,
that where the statute does not expressly declare what shall be the
effect of the usury, the usurious contract or security will be held
to be void in the hands of the usurer himself, and cannot be

enforced. So that, as to the original parties, when the transaction
isfound to be usurious, the question is settled. The contract or
security is absolutely void, and can be available for no purpose
whatever. If the instrument is given to secure a usurious loan,
the lender loses the money loaned and ; if the usurious instrument
be given to secure a valid debt, the instrument itself is void and
BS2 LAW OP ustrsT.
of no account, although the debt purported to be secured by it

may stillexist. The authorities to this effect are numerous and to
the point, and it has been held that this is not the effect of the
statute alone, but even at common law usury avoided the contraet
{OUver V. Oliver, 2 Jiol. B., 469; and vide Scmderson ^f.
Warner, Jb., 239; S. 0., Palm.. E., 291).
'
It has been suggested in some quarters that there is an excep-

tion to this rule; that is where a mortgage is
to say, that in a ease
given on lands in a foreign State, according to the law of that State^
it is said that such mortgage will be sustained *MTe?ra, notwith-
standing the contract of loan may be invalid in every place where

it is sought to be enforced {Blyd. on Usv/ry, 8T).
This suggestion seems to have been made upon the authority of
a case decided by the late Court of Chancery of the State of New
York. It is difflcuTt, how'ever,t6 extract that precise doctrine
from this case. The fact that the loan was secured by a real estate
mortgage executed in the State where the lands lay, and where
the borrower resided, doubtless made it a proper ease in which to
-apply the principles governing in cases of conflict of laws, while if
the loan' was made upon personal security alone it would not he/ve
been such a case. But the case hardly holds that the mortgage
could be enforced, when the bond, thfe foundation of the debt, was
absolutely void and of no effect. A brief reference to the authority
will show what was therein decided. The facts were theBe: The
defendant Robertson, a resident of the State of New York, being
in England in the summer of 1833, where the complainant resided,
applied to the latter at his residence for the loan of £800 sterling
upon the security of his (Robertson's) bond and mortgage on his
lands in the State of his residence, and the complainant then

offered to loan him that sum Upon the security offered, at an inte-
rest of seven per cent per annum, the interest to be paid annually.
It was further agreed between the parties that upon the return of
Robertson to this State, he should execute his bond and mortgage
to the complainant and have the same duly recorded, and should
transmit the same to the complainant in England, who, upon the
receipt of such securities, was to deposit the £800 with Robert-
son's' bankers in London for his use. The securities were exe-
cuted and sent to the complainant accordingly. He deposited the

money with Robertson's bankers for his use, according to the
agreement. Default having been made, the complainant filed his
EFFECT OF USURT. 383
bill to foreclose the mortgage, and the defendant set up the usury
laws of England in his answer as a defense to the suit.
The court held that the mortgage was not usurious, but on the
contrary was a valid security for the loan according to the laws of
New Tork, and that the usury law of England could not be set up
as a defense to defeat it. Walworth, Chancellor, in his opinion,
'
said: "It is an established principle that the construction an.d

validity of contracts which are purely personal depend upon the.
laws of the place where the contract was made, unless it was made
in reference to the laws of some other place or country where such
contract, in the contemplation of the parties thereto, was to be
carried into effect or performed (2 KenSs Com., 457 Story^s Confi. ;
of Lams, 227, § 272). On the other hand, it appears to be equally

well settled by the laws of every State or country that the trans-
fer of lands or other heritable property, or the creation of any
interest in or lien or incumbrance thereon, must be made according

to.\the lex situs, or the lacal law of the pl^ce where the property
is situated. And it, has been decided that tlie lex loci rei sitce
must also be Resorted to for the purpose of determining what is or
is not to be considered as real or heritable property, so as to have
the locality within the intent and meaning of this latter principle
(Newlcmds v. Chalmers^ Trustees, 11 Sha/w (& Dowl. Sess. Cos.,
65). The case under consideration would have come clearly within
the first of these principles, if the land of Robertson had been the
only security for this loan, although he resided in this State, and
intended to use the money here, where the legal rate of interest is
seven per cent, as specified in the bond. There is- nothing in the
bond from which it can be inferred that the parties contemplated
the payment of the money in this State. And as no place of pay-
ment is mentioned, the legal construction of the contract is that
the money is to be paid where the obligor resides or wherever he
may be found. His residence being in England at the execution
of the bond, that must therefore be considered the place of pay-
ment, for the purpose of determining where that part of the con-
tract is to be performed. I lay out of view the fact that the bond
itself was signed and sealed in this country, because as a mere
personal contract it would be wholly inoperative until it was

received by the complainant in England, when the money was
there to be deposited with the banker for the use of the borrower.
* * * I have very little doubt that a security like that which
384 iiAW OF U8URT.
is now under consideration, actually executed in the country where

the mortgaged premises are situate, by a person domiciled at that
place, for the repayment of a loan to be made upon the faith of
such foreign securities, and for the purpose of being used by the
borrower in the country of his residence, would have been con-
sidered as valid by the courts of England, even if this statute had
not been passed. And if this was a valid mortgage by the laws
of England, so that a recovery might have been had in that coun-
try upon the covenant for the repayment of the money, or upon
the bond given therewith as collateral security, it is unquestionably
a valid security here to give a lien upon the mortgaged premises
for the payment of a rate of interest authorized by the lex sit/us.
* * * If no rate of interest was specified in the contract, it
might perhaps be necessary to inquire where the money was legally

payable when it became due, for the purpose of ascertaining what
interest the mortgagee was entitled to receive {Quin&p v. Gallen-
der, 1 DeobcorCs M., 16f) Scofidd & Taylor v. Day, 20 Johns. R.,
;
102). But if a contract for the loan of money is made here, and
upon a mortgage of lands in this State, which would be vaUd if
the money was payable to the creditor here, it cannot be a violation

of the English usury laws, although the money is made payable to
the creditor in that country, and at a rate of interest which is
greater than is allowed by the laws of England. This question

was very fully examined by Judge Martin, in the case of D&pea/u, v.
Humphreys, in the Supreme Court of Louisiana {^Q.MarUn's B.,
1) and that court came to the conclusion, in which decision I fully
;
concur, that in a note given at New Orleans, upon a loan of money

made there, the creditor might stipulate for the highest legal rate
of conventional interest allowed by the laws of Louisiana, although
the rate of interest thus agreed to be paid was higher than that
which could be taken upon a loan by the laws of the State where
such note was made payable. Here the verbal contract for a loan
upon the security of a mortgage upon lands in this State was
wholly inoperative until the mortgage and other written security
were executed in this State, and which agreement was consumma-
ted by the deposit of the money to the order of the borrower.
It was a contract partly made in this State and partly in England,
and being actually made in referenqe to our laws, and to the rate
of interest allowed here, it must be governed by them in the con-
struction and effect of the contract as to its validity. * * *
The usual decree for a foreclosure and sale must, therefore, be
entered" {Ghwpman v. Robertson, 6 Paigis R., 627, 630-635).
The soundness of this case has been questioned by high autho-
rity, although it does not seem ever to have been expressly over-
ruled, and the decision itself does not sanction the idea that when
a loan is made between parties of the same
and in the State
State,
where they reside, and the loan is contracted to be repaid in the
State where the loan is made, with interest at a rate above what is
allowed by the laws of the State where the contract was made and
is to be performed, and the payment of the loan is secured by a
mortgage on lands in a foreign State, where the interest reserved

would be legal, the transaction is not usurious, so far as the moft-
gage is concerned, and that the mortgage can be enforced. But,
ratlier, the chancellor holds that the conPract in that case was made
with reference to the laws of New York, and as the transaction
was not usurious by those laws, the mortgage was a valid security,
and could be enforced. The decision of the chancellor was doubt-
less correct, whatever may be which he assigned
said of the reasons
for it. The by mortgage on
fact that a 'usurious loan is secured
real estate in a country where the loan would not be usurious will
not probably change the nature of the transaction. It is true that

when a mortgage is given, the laws of the State where the land is
situated must control as to the form of the mortgage, its manner of
execution and acknowledgment but those laws may not necessarily
;
control with respect to the question of usury in the case. The rule
adopted in cases of real estate, called lex rei sitcg, does not govern
the question of usury involved in a contract secured by real estate
collaterals. The fact that a mortgage is given upon real estate as
a collateral security for the payment of the contract of loan, does
not restore the co^ntract to validity, for collaterals cannot affect the
original inception of a contract of loan, because they are mere
dependent incidents, and subsequent in their nature. For this
reason, it would seem quite reasonable that if the original contract
of loan was void for usury, the security collateral to it, whatever
its nature, wotild also be usurious and void, and could not be
enforced. So, after aU, it may be affirmed that mery contract, assur-
ance or security, which is founded in usury, as between the origi-
nal parties to the transaction, at least, is ipso facto void, and

can never be rendered valid by the subsequent act pf the par-
49
386 LAW OF USTIBT,
ties whether the same is void as to other parties will depend

;
upon circumstances which it becomes necessary to refer to.

As has been before suggested, where the statute declares that
the usurious instrument shall be void, it will be so regarded, into
whosesoever hands it ma,y go, or whoever may attempt to enforce
it. But in some instances the statute excepts certain parties from
its effects, who may not be connected with the original usurious
transaction. In such cases, however, the statute usually exempts
only sucli parties as may be entire strangers to the usury, and who
may have become possessed of the usurious security lonafide, and
without any notice of the original usury, and upon a good and
valid consideration. So that in those cases, after the original
usury is established, the question to be litigated is, whether the
party a lona fide holder of the tainted security, and whether
is
he paid legal value therefor. The rules by which these questions

are determined 'will be best understood by a reference to a few of
the leading authorities upon the subject.
Under the old English statutes of usury,
it was well settled
that a stranger must "heed to his assurance at his peril," and he

could not set up his ignorance of the corrupt contract in support
of his claim to recover upon a security which originated in usury.
So that but little light would be obtained upon the subject by a
reference to the authorities under those statutes.
Previous to the Eevised Statutes of 1830, in the State of New
York, the old Supreme Court of the State held that where a
usurious note had been transferred for a valuable consideration
and without notice of the usury, and a new note had been taken
by the holder, the usury of the iirst note could not be set up in
bar of a recovery on the second note.
Savage, C. J., gave the opinion of the court, and said :
" The
other point is equally well settled. Even although it had been

shown that the first notewas tainted with usury, and therefore
void in the hands of the Franklin Bank, who had paid value for
it without notice of the usury, yet the giving a new security to
an innocent holder for valuable consideration constitutes a new

transaction, and the usury of the first note does not affect the
second. In Powell v. Waters (8 Oowen, 681), Chancellor Jones,
speaking of the proposition that a new security, taken in renewal
of a prior usurious contract by a iona fide holder, is not avoided
by the usury of the original transaction, says, ' that principle
EFFECT OF USURY. §87
applies to the case ofan innocent holder of a usurious contract,
for which he has given a valuable consideration without notice of
the usury.' Colden, senator, expresses the same sentiment at
page 696 among the principles which he considers well settled,
;
he says :
' If an original note or security be usurious, a subsequent
note or security, taken in the place of the original note or security
by an innocent and iona fide holder thereof, ignorant of the
not usurious, unless more than at the rate of
original usury, is
seven per cent was taken upon the new note or security.' This
was the doctrine asserted by the learned judge at the circuit, and
is sound law " {Kent Walton, 1 Wend. B., 256, 258).
v.
This decision was made when the Revised Laws of KTew York
were in force, by which usurious securities were declared void.
The provisions of the Revised Statutes of the State, which pro-
tected lonafide indorsees of negotiable paper, did not take effect
until 1830 and this case was tried in 1829.
;
The provision of the Revised Statutes of ITew York upon the

subject of usury as originally passed, declared usurious notes, etc.,
void, but that this should not extend to an indorsee in good faith,
for valuable consideration, and without actual notice that the note
had been originally given for a usurious consideration. Under
this statute it was held, by the old Supreme Court of the State,
that a party who bought an accommodation note before it had
been used for any business purpose, stood in the same situation, in
respect to the defense of usury, as if he were the payee named in
the note ; and this, though he took the note supposing it to be
business paper, and therefore that such a party was not entitled
to be protected as an indorsee or holder in good faith, within the
meaning of that provision {Aeby v. Rapeh/e, 1 HilVs M., 9).
And seems that the courl^ of the State of Maryland have held the
it
same doctrine, imder similar provisions of law {Gockey v. Forrest,

3 Oill. <& John. R., 483).
This would seem, at the first glance, to be contrary to the
intpnt and spirit But the argument was that the
of the statute.
note had its inception by the act of discount, and the case was,
therefore, as if it had been made payable directly to the indorsee
on his advance of a usurious loan and it was said that the statute
;
did not protect a man who participated in the concoction of usu-

rious paper —a man who was himself the prominent actor in the
usurious transaction,
;
388 L^w OF nsvBT.
In the State of Maine, under a similar statutory provision, the

Supreme Court held that wherever a note is purchased after the
day of payment shall have elapsed, the maker is entitled to the
defense of usury in a suit by an indorsee, as ftiUy as if the notfe
had remained in the hands of the payee (îng v. Jhmn, 11 Shep.
E., 128). It was held in the same State, however, that in an action
by an indorsee against the maker of a note, usury between the
indorsee and indorser cannot be set up in defense {Glwpp v. Hamr
sen, 3 Shep. B., 345).
It has been held, both in Massachusetts and Missouri, that it is
a good defense to an actibn, by an indorsee against the indorser of

a note, indorsed for the accommodation of the maker, that the
indorsee received the note as security for the performance of a
usurious contract between him and the maker (Bimseomb v.
jBwnker, 2 Met. E., 8 ; Wmser v. Shelton, 7 Mo. B., 237).

And in the State of Mississippi it has been held that a note or
other security given in renewal of a usurious note was usurious
and that an indorser of a note, who takes it with notice that it is
tainted with usury, takes it subject to that defect, and that,,
although the maker, before the indorser took it, promised him
that he would not take advantage of it that the consideration
;
being the waiver was not binding on the maker. But

illegal,
that it would be otherwise where there was a mere failure of con-

sidei'ation {Torry v. Grant, 10 Smede c& Marsh B., 89).
Under the stringent usury laws of New York it was held by

the late Court of Chancery of the State that the innocent indorsee
of a usurious promissory note, after maturity, would be protected,
and a new security given therefor by the maker would be valid.
The facts of the case were these "W., as indorsee, held a note
:
made by S. and attached his goods, but d.ischarged the attachments

on S.'s giving him a new note, and S. set up usury between him-
self and the payee of the fomier note, and insisted that the new
note was thereby tainted. The court held that the new note was
valid, if, was the presumption, W. was a bona fide holder of the
as
old one for value, and without notice of the usury {Smedb&rg v.
Whittlesey, 3 Sand. Oh. B., 320). And it was distinctly declared, in
a case before the Superior Court of the city of New York, that where
a party to a usurious note gives a new security for it to one to whom
it has been transferred for a valuable consideration without notice
pf the usury, the security is valid, although the holder could not
'
have recovered on the note, and although he had notice of the

usury after the maturity of the note, and before receiving the
gecurity {Smedbv/ry v. Smvpaom,, 2 Scmd. R., 85).
It was held in this last case that the indorsee of a negotiable
Bote will be presumed to have received it before maturity, and

without notice thatit was tainted with usury before he received it.
This doctrine is important in its application to the point under

consideration.
In the State of North Carolina, the Court of Chancery has held
that a notemade with intent of being usurious, by being discounted,
for the accommodation of the maker or the payee, or both of them,
will not be obligatory between the parties, and is void in the hands
of one who discounts it at a usurious rate ; and it was said that

there was no difference between a man's making his own note to
the lender and getting a friend to make a note to himself, and his
passing that to the lender ; and it seems not to be material in such
case, under the statute of North Carolina, whether the lender
knew the intention of the parties to the note or not {Simpson
V. FuUmuoider, 12 Ired. Eq. E., 334).
Biit Supreme Court of the same State has held that the
the
assignee of a bond, valid between the obligor and obligee,- may
recover of the obligor tte full amount of tbe bond, although he
purchased it at ^ discount and claims through a usurious indorse-
ment.
Euffin, J., in giving the opinion of the court, said :
"
The bond
was available between the obligor and obligees, The former is
not privy to the usurious agreement between the latter and the
present holder. If the security be in its origin usurious, it is
void, intowhose hands soever it gets, by the words of the statute.

If it be good in its origin, a subsequent usurious agreement
between the same parties does not avoid it, though it may subject
the one party to the penalty, if anything be received under the
corrupt agreement. And if it be good in its origin, the subse-
quent transfer of it, usuriously, does not affect it as against the
maker. No redress can be had on the indorsement as between the
parties to it. The very object of the statute is to protect the bor-
rower as an oppressed man. But there is no oppression on the
obligor, who is a true debtor. The law was not intended for his
protection" {GolUer v. Nevill, 3 Dev. R., 30).
Under the statute in force in Georgia in 1852, it was held that
390 LAW OF USUET.
when a judgment not tainted witli usury was transferred and the
transferrSe agreed with the defendants to forbear its collection
for a terra of time, in consideration of usurious interest paid him,

such subsequent agreement was usurious, and affected the judg-
ment so far as to make the principal due thereon only collectible "
{Troutman v. Barnett, 9 Geo. R., 30). This is different from the

rule at common law, for, according to that, a contract which is not
tainted with usury in its inception is not made usurious by a sub-
sequent agreement to pay usury in consideration of forbearance.
The subsequent agreement would be void for usury, but the origi-
would remain intact.

nal contract
The Court of Chancery of the State of Maryland decided, in
1853, that the' statute against usury could not be evaded by any
shift or device, and that no matter what the form of the transac-
tion might be, the courts would explore the real truth, and if they
discovered that the object was a loan of money at more than
the legal interest it would be condemned, and it was held that a
renewal of the usurious contract between the same parties par-
takes of the infirmity of the original agreement but that if the;
latter' is discharged, or is made the consideration of a contract

entirely new, as being with a third party, not a party to the origi-
nal contract, or to the usury paid, or as combining other parties

and considerations than those in the original contract, and with no
proof that it was a contrivance to evade the statute, theTule would
be different. The chancellor in the case refused to set aside an

agreement made more than eight years after the alleged usurious
contract, carried into execution on both sides, and combining other
parties and considerations than those in the original contract, and
with no proof that it was a contrivance to evade the statute
{Brown v. Waters, 2 Md. Ch. Beds., 201).
In the State of Yirginia the following case was declared not to
be affected by the usury of the contract, as against an assignee of
the contract A. took the oath of insolvency at the suit of B., and
:
surrendered a bond on C, upon which the sheriff, for the benefit

of B., brought suit against C, who plead, in off-set, a judgment he
had recovered against A. upon a bond that had been assigned to
him. He sued A. upon this bond before he took the oath of
insolvency, but the judgment was not recovered uptil after the
oath, but before the suit against him by the sheriff. The sheriff
replied that the bond upon which the judgment was recovered was
EFFECT OF USUMT. 391
usurious. The court held that usury in the bond, upon which the
judgment was recovered, could not be set up to the judgment, and
that it was a good set-off {Sope v. Smith, 10 Grait. B., 221).
It has been held by the Supreme Court of Maine that an indorsee
of a note, given entirely for usurious interest, whose agent was cog-
nizant of all the circumstances, is not an innocent indorsee who'
wiU be protected. And

was declared that a note given entirely
it
for extra interest above the legal rate on a sum loaned, has no legal
consideration {Goodrich v. BuzzeU, 40 Maine B., 500).

It has been held by the Supreme Coua't of Connecticut that by
the law of the State of New York, where a debtor gives a new
security for his usurious debt to the 5t>«.»^& assignee of such debt,
who took the original debt and takes the substituted security, with-
.out any knowledge of the usury, such debtor cannot afterward set
up the usury as a defense to a suit brought by such assignee upon
the substituted paper {Houghton v. Pm/n, 26 Conn. B., 396).
This is in accordance with the decisions in the State of New York,

to which reference has been hereinbefore made.
But in the State of Kentucky the indorsee of promissory notes
was held to be affected by usury in the original transaction. The
facts were these : A member of a firm
assigned to his son, as an
advancement, a note made to the
which note was subsequently
firm,
taken up by the obltgor, he giving two other notes, payable to two
other persons, who indorsed them to the son. The two notes not
being paid when due, the son brought an action against the maker
to recover the amount of them, and the obligor alleged and proved,
as a defense, that the members of the firm were the beneficial
owners of the notes, and that he had paid them usury on the trans-
action. The court held that he was entitled to a credit on account
of the usury paid {Humphreys v. Pearoe, 1 Dv/vaWs B., 237).
In the State of Indiana, usury was made available as against an
iadorsee under the following circumstances : A borrower, in con-
sideration of a loan, executed a negotiable promissory note, with
interest for a sum greater than the amount of the loan, promising
to give a mortgage to any holder of the note, and the payee
indorsed the note to a third party upon the execution of a mort-
gage by the maker to the latter. The court held that the maker
could set up the defense of usury in an action on the note {Jfus-
sehncm v. McMhenny, 23 Ind. B., 4).
; .
S92 L-A^W OV VSURT.
And in ttie State of Iowa it has been held that the defense of
usury may be set up to an action on a note by an indorsee, not-
withstanding a promise to pay it, made by the maker to such
indorsee after indorsement {AlUson v. B(Mrrett, 16 Zowa, B., 278).
In the State of Vermont, in an action to recover back money
paid as usury, it appeared that the defendant ageeed to obtain a .
loan of money for the plaintiff, and did obtain it of H. at a usuri-
ous rate of interest, and that he received seventy-five dollars from

the lender as a part payment of the tranfiaction. Subsequently he
purchased the plaintiff's note of H., and the plaintiff paid him
the principal and the usurious interest. H. admitted that he
received one-half of the extra interest included in the note, and
settled with the plaintiff therefor. The court held that the defend-
ant was a party to the usurious contract, so as to be liable to repay
the usury he had received. The theory of the decision of the
court was, that the plaintiff's cause accrued when the payinent
was made by him,.and not when the defendant received theseventy-
five dollars from H. ( WUUams v. Wilson, 37 Vt. R., 613).
In the State of Iowa, usury in the original transaction was held
not to be available under the following circumstances Y. loaned :
the maker of a note, which was usurious, money to take it up, and
received the note and the security for its loan. The Supreme
Court held that the usury could not be set up as a defense to the
note in Y.'s hands, whether Y. had notice of the usury or not
( Wendlfibone v. Pa/rlcs, 18 Iowa It., 546).
The Supreme Court of the State of Illinois has held that when
a note tainted with usury is assigned by the payee to a creditor as
collateral security for a pre-existing debt, he is a holder for a valu-

able consideration, but only to the extent of the debt due him
and was decided that the same defense might be made to the
it
residue of the note as if it had not been assigned (Taylor v.
Dcmiels, 37 III B., 331).

The Court of Appeals of the State of New York have lately
given a construction to the laws of Ohio on the subject of usury,
and decided tHat, in respect to purchasers of commercial paper in
good faith and for value, it is no defense, under the laws of that
State, that the contract was usurious as between the original parties
{Fm-mers' cmd Meehanics' Bcrnh v. ParTcer, 37 N. Y. B., 148).
The precise doctrine had been previously settled by the Supreme
Goiirt of Ohio, and the reasoning and conclusions of the court
EFFECT OF USUBT. '393
-would seem to be conclusive upon that subject {Picka/wa/y Gownty

Bank v. Prather, 12 Ohio St. B., 497, 511).
CHAPTEE XXX.
EFFECT OF TTSUKT UPON PEIOB AOTJ SUBSEQUENT SEOUEITIES, OOLLAT-
EEAIi TO THE CONTEACT INFECTED WITH THE OEIGINAL TAINT
KEFOEMING THE OEIGINAL CONTEACT JUDGMENT UPON THE U8UEI-
ODS TEANSACTION, AND THE LIKE.
The effect of usury upon, instruments entering into the usurious

itsaus^ction, or upon instruments which
are predicated in whole or
in partupon the contract infected with usury, depends upon
principles which are well defined by the eojirts, and may be under-
;stood by a refereiice fo some of the leading authorities upon the
subject.
The statute of New York declares void all contracts and securi-,
ties affected with usury, without any reference to the source from
which the objection comes or the consequences which may follow.
But the courts have been disposed to fix some limit to the influence
of this sweeping provision, even, and it seems necessary that they
should do so, for otherwise the greatest injustice would often be
done to innocent third parties. It has accordingly been held that
a Swifl! ^(^(3 purchaser, under a eta tnte foreclosure of a mortgage
void for usury, will acquire agood title. This was so held by the
old Supreme Court of the State of New York, in a case in which
the precise question was involved. Kent, C. J., in delivering the
.opinion of the court, said " The principles of public policy, and
:
the security of titles,, are deeply concerned in the protection of

such a foreclosure. If the purchase was to be defeated by the
usury in the original contract, it would be difiScultto set bounds
to the mischief of the precedent, or to say in what sequel of
through what course of successive eliminations,
.transactions, or
and for what tune 'short of that in the statute of limitations, the
antecedent defect was to be deemed cured or overlooked, so as to
give quiet to ,the title of the hona fide purchaser. The incon-
venience to title would be alarming and enormous. The law has
:always had regard to derivative titles, when fairly procured and ;
thjOugh it may be frue, as an abstract principle, that a derivative

title cannot be better than that from which it was derived, yet
50
394" LAW OF VSURT.
there are many necessary exceptions to the operation of this

principle" {Jacjeson v. Henry, 10 Johns. R., 185, 197; and vide
Ellwtt Wood, 53 Ba/rb. H., 285). The same doctrine was early
V.
advanced by the English courts, in cases which arose under a

usury statute similar to that of New York.
In one case, it appeared that A. made a usurious note to B., who
transferred it to C. for a valuable consideration, without notice of
the usury, and A. thereupon gave a bond to 0. for the amount.
The court held that the bond was not affected by the usury in the
original transaction. And Lord Kenyon observed, in the case, that
if the defense " were to succeed, it might affect most of the securi-
ties in the kingdom '; for if, in tracing a mortgage for a century
past, it could be discovered that usury had been committed in any
part of the transaction, though between other parties, the conse-
quence would be that the whole would be void. It would be a
most damning proposition to the holders of all securities " {Guth-
lert V. Haley, 8 Term R., 390).

And in a still earlier case, wherein it appeared that the defend-
ant was indebted to one Alder in £100 on a usurious contract, and
Alder was indebted to the plaintiff in £100 of just debt, and
the defendant, for the payment of the iisurious debt to Alder,
joined with Alder in a bond for £100 to the plaintiff, and the
bond was held good, because the debt to the plaintiff was a just
debt, and he was ignorant of the usury ; and the court said, " for
as on the one side it may be said to be the means to defraud the
statute, so on the other side it may be a greater mischief to a
true creditor, where he shall take security by way of bond with
be examined whether there were
sureties for monfey, if it should
any corrupt agreement betwixt the creditor and his surety, whereof
he cannot by intendment have any conversance " {Ellis v. Wa/res,
Cro. Jac, 33).
The doctrine of these cases seems to be, that as long as the
usurious contract remains executory, so long the borrower may
avail himself of the usury but not after the contract is executed.
;
If the lender comes into a court to enforce the contract, the bor-
rower may object that the contract is usurious ; or if the borrower
seeks relief in a court, he can obtain it only on terms. But where
the contract is executed, and rights vested under it in due form of
law, the borrower can never raise the objection of usury. And
yet this doctrine is not of universal application.
;
'
EFFECT OF USUBT. 395
The old Supreme Court of the State of New York decided

that where upon the foreclosure of a usurious mortgage the mort-
gaged premises were purchased by the mortgagee himself, his title
might be impeached. The case was where a mortgage was given
as security on a usurious contract, with a power of sale, and the
mortgagee, by virtue of the power of sale, sold the land, under
the act of the State concerning mortgages, and became the pur-
chaser through an agent for that purpose. An action of eject-
ment was then brought against such mortgagee, by a purchaser of
the equity of redemption, and the defendant set up a title acquired
by the sale under his mortgage. The court held that the plain-
tiff might prove usury in the mortgage, and recover, notwith-
standing the mortgage. And the court further held that a fore-
closure of a mortgage, by virtue of a power of sale under the
statute, was not founded on any judgment or decree of any ôurt,
bat that it was the mere mortgagee and he, being party
act of the ;
to the usurious contract, was in no better situation than if no

foreclosure had taken place {Jackson v. Dominick, 14 Johns. M.,
435). And the probability is that the same doctrine would be
held in respect to any other purchaser who had notice of the
usury at the time of the sale. The courts seem inclined, so far aa
they can, to protect an innocent party who has no notice of the
usury. But in all cases where a new security is substituted for a
usurious one, by the same parties, the original taint of usury will
affect the new security.
Under the stringent provisions of the Ifew York statute it has
been held that contracts affected by usury are not so utterly void
but that they may be ratified ; and upon been
this principle it has
declared that if a borrower repay a loan, which he might have
avoided for usury, he cannot recover the money back again ; though,
under the he may recover the excess which has been paid
statute,
beyond legal interest. So, it has been decided that if a debtor
make a conveyance of his land to the creditor, in satisfaction pf a
usurious debt, the deed cannot be avoided for the usury. The
original taint of the consideration does not, in such a case, affect
the conveyance {Denn v. Dodds, 1 Johns. Cas., 158 ; and vide
Pratt V. Adams, 7 Paige's B., 615). And under the old English
statute of uûry it was held that where a man has conveyed his
property upon a usurious contract, the deed will stand good until
the grantor or some one claiming under him chooses to avoid it
;
396 LAW or ususr.
that is to say, the conveyance is declared not to be a mere nullity

( Whelpdale's Case, 6 GoMs B., 119 ; 8. C, BvlWa N. P., 224),
The doctrine, however, is well settled, that where the original loan
is usurious, all the securities therefor, however remote or often
renewed, are void, as between the original pairties ; and, according
to the New York statute against usury, as against third parties a£
well. A mere change of securities for the same usurious loan, to
the same person who committed who had
the usury, or to a party
notice of can never purge the original consideratioti, or give a
it,
right of action {Twthill v. Bamis, 20 Johns. B., 285; Price v.

Jjyons Bank, 33 N. Y. B., ,55 ; amd vide Bimnmg v. Merrill,
CIO/rice's Gh. B.^ 253 ; Wales v. Well, 5 Conn. B., 154 ; Hammond,
V.Bangs, 1 Kelley's B., 416 Torry v. Grant, 10 Sniede &
;
Marsh. B., 89 Jackson v. Jones, 13 Ala.. B., 125). If the usu-

;
rious contract be mutually abandoned by the parties, and the secu-

rities are canceled or destroyed so that they can never be made the
foundation of an action, and the borrower subsequently make a
contract to pay the amount actually received by him, this last con-
tract will not be tainted with the original usury, and can be enforced.
But there is no possible mode in which a usurious security can be
made good. The vice, as to such security, is incurable. Still, the
parties to a usurious transaction may doubtless reform it ; and by
canceling the usurious security and giving a new obligation for the
realsum which ought to be paid, excluding all usury, the party
( Vide Hanvmond v. Sopping, 13 Wend. B., 505
will be bound
Kilhourn v. Bradley, 3 Day's B., 356 McGlwre v. Williwm,s, 27 ;
Yt. B., 210). But it has been held that a security founded upon
the abandoiJment of a usurious agreement is invalid, unless the
usurious contract was abandoned with a full knowledge in both
parties of the precise situation of such contract; and such know-
ledge must be brought home borrower by positive proof
to the
(Bank of Monroe v. Strong, Clarke s Gh. B., 76). And where
money was lent in the city of New York, and notes taken therefor
payable in New York at a usurious rate of interest, both parties
being residents of that city, and when the notes were maturing the
lender of the money and the holder of the notes were temporarily
in Connecticut,whose laws did not recognize the usury, and there
renewed the loan by taking new notes of the borrower and others
residing in New York, without any deduction of the usury the ;
courts held that the usurious contract was not refoaoedj but that
;
EFFECT OF USUBT. 397

the renewal was to be judged by the laws of lêw York, and that
the new notes were void {Jacks v. Wichols, 5 N'. Y. B., 178,
aff/rmmg 3 Sandf. Gh. B., 313, and reversing 5 Barh. B., 38).
But the moral obligation which the borrower of money at usurious
interest isunder to pay the principal sum due and legal interest,
is promise by him to pay
a sufficient consideration to support a
such principal and interest and, hence, a new security, given for
;
the true amount, in place of the usurious one, can be reformed

but the subsequent security in place of the old one must not include
any of the taint of the excessive interest, or it will be infected with
the original taint.
Where money was loaned on a usurious contract, and, on matu-
rity of the note given for the loan, it was partially paid, and a new
note, similar to the former, given for the balance, it was held that
the new note was void for usury ; and, in the same case, it appeared
that the borrower was not a party to the usurious note, being nei-
ther maker nor indorser, but the security was such, both as to par-
tiesand time of payment, as had been previously agreed between
the borrower and lender and the court held tnat the indorser, in
;
an action against him, might show the usury in bar of the action
(
Wa/rren v. Ordbtree, 1 Ghreenleafs B., IBY ; and vide Ohadhoum
V. Watts, 10 Mass. B., 121). And where A., being the maker of
a note to B., which was void for usury, asked for credit beyond the
maturity of the note, and B. agreed to give further credit if he
could obtain other security, and A. obtained and furnished, for that
purpose, a new note, made by C, payable to and indorsed by D.,
which was received by B. in exchange for the former note, which
was given up and canceled, it was held by the Supreme Judicial
Court of Massachusetts that this latter note was void in the hands
of a bona fide indorsee without notice, the same being a mere sub-
stitute for the first note (Bridge v. HiMa/rd, 15 Mass. B., 96).
So, also, where a surety upon- a usurious note, who was a party
to the same, applied to the holder for the note, that he might secure
it out of the estate of the maker, who was in failing circumstances,
and gave his own note to the holder in lieu of it, the Supreme
Court of Connecticut held that the note so given was a substitute
and therefore usurious.
for the other, But the court decided that
if upon a usurious note, who
a surety is a party to the same, obtains
payment of it from the maker, and is thereby fully indemnified,
and gives his own note to the holder for the amount, the latter
;
398 iATf OF USURY.
note is not usurious {Botsford v. Scmford, 2 Conn. M., 27^ ; <md

vide Scott Y. Lewis, lb., 132).
A case came before tlie present Supreme Court of the State of

New York involving the question under consideration, under the
usury laws of this State, which was as follows : A. executed a
mortgage on his land to secure a usurious loan. He subsequently
requested the defendant to execute a mortgage upon his land to
the lender in place of, A.'s mortgage, which was done, but without
any consideration, and the mortgage of A. was, thereupon, given

up and canceled. The court held that the mortgage executed by
the defen,dant, as well as the first mortgage, was void for usury
and it was declared that any security, given in payment or die-'
charge of a usurious security, is equally void with the original
security,and that the original taint of usury attaches to all subse-

quent considerations, obligations and securities growing out of the
original vicious transaction ; that a new security of the borrower
for the same debt secured by the usurious mortgage would be
vitiated by the usury, and that the obligation of a third person
stands upon no better foundation.
Allen, J., delivered the opinion of the court and examined a
large number of authorities, both English and American, and
showed, very clearly, that the law was well settled in accordance
with the several positions laid down in the case, and that the final
decision of the case was well sustained, both upon principle and
authority (
Yiokery v. Dickson, 35 Ba/rb. R., 96, cmd vide Stcmley
V.Whitney, 4:7 ib.,, 686).
The same learned court held in a subsequent case that where the
consideration of a mortgage was partly ^ previous valid loan and
partly the assignment of a former usurious security at its full
nominal value, and the mortgagors defeated the mortgage on the

ground of usury, the mortgagee was entitled to the amount of the
previous valid loan, which was not tainted by the subsequent usu-
'
rious transaction (McOraneyAlden, 46 Barb., 272).
v.
And in the Court of Appeals of the State of 'Sew York it was

held that where a valid claim is embraced in a subsequent security,
which is invalid because made upon a usurious consideration, the
valid claim will not be thereby rendered void or in any way
discharged, but that the owner thereof will be restored to his
rights' under the original claim {Oooh v. Barnes, 36 N. Y. B.,
520 ; Farmers' am,d MeohamAoi Bank v. JosVyn, 37 «5., 253).
EFFHeT OF USURY. 399
The Court of Common Pleas of the city of Ifew York have held
that where a judgment has been recovered on a note and settled
by the defendant's giving new seccurity, the defendant cannot, in
a suit brought on such security, show usury in the original trans-
action. And it was decided in the same case that when a note is
received at less than its face as security for a judgment and iu part
payment, but the judgment is only to be satisfied if the note is
paid, such is not usury, but that the plaintilff can only recover
the amount due on the note {Cromwell v. Dela^lame, 5 If. Y.
Leg. Ohs., 226).
This last mentioned case, doubtless, was decided upon the princi-
ple that after a judgment has been duly recovered upon a contract
the same is conclusive upon the parties until it is reversed or set
aside. In other words, that by the judgment it is judicially deter-
mined that the cause of action upon which the judgment was
entered was perfectly legal and just, and hence when the judg-
ment is paiid or secured the party is not at liberty to go back of
the judgment for matters to impeach such payment or security.
If a judgment be originally given or confessed by the borrower, to
secure a usurious loan, it may be set aside for the usury but so ;
long as it is in force such judgment is conclusive between the

parties, even under the sweeping provisions of the usury statutes
of New York.
A case came before the late Court of Chancery of the State of New
York, in which it appeared that the purchase-money of a parcel of
land had been paid, except about $T00, which was past due under
the contract, which did not, however, make punctual payment an
essential part of the agreement whereupon the vendee applied for
;
delay, and the vendor delivered to him an absolute deed, and took
back a bond and mortgage for $1,000 and interest. The court
held tjiaf it was a palpable case of usury, and that the usury
entered into the bond and mortgage, so that they could not be
enforced and must be set aside, notwithstanding it was decided
that the original debt was not invalidated and that the unpaid
purchase-money remained an equitable lien upon the land {Orippen
V.' Heermance, 9 Paige's B., 211).
The
doctrine is well settled that a iona fide debt is not lost by
having been made a consideration, in part or in whole, of a con-
tract which has been avoided for usury ; and it has uniformly been
held that if the security for such debt was given up in the making
400 i-4W- of USURT.
of such usurious Contract, other evidence of the debt is admissible

in the action brought upon the usurious contract, and, when the
action is in the proper form, a recovery may be had thereon in the
same action. This practice vj&b tolerated and sanctioned in some
of the cases already cited, and others may be referred to ( Vide
Ed'sel V. Stamford, 6 Vt. B., 551 ; Bice
Wend. R.,
v. WeUing, 5
596 Fa/rker
; v. Ccmsms, 2 Gratt B., 372 ; Brcmnoekv. Bramiock,
10 Ind. B., 428 Cook v. Barnes, 36
; Y. B., 520). M
As the law stood in the State of Indiana, in 184 Y, an instrument
was void for usury, and it was held that a note void in its incep-
tion would be void in the hands of an indorsee, without notice of
the usury and, moreover, that a mortgage taken by an indorsee
;
of a usurious note, to secure its payment, was void, although the

indorsee had no notice of the usury at the time of the indorsement,
especially if at the time of taking the mortgage he had such notice
{Morgan v. Tipton, 3 McLean^ B., 339).
In the State of Alabama, it was held that if a contract is usuri-
ous in its inception, no renewal of the note or change in the form
of the contract can alter its first character ; but that the taint of
usury follows even in the hands of a horvafide holder, unless he

it
receives it through the fraud of the maker {Pewrson v. Bailey, 23

Ala. B., 537).
It was held in the State of Kentucky, in 1860, that where usury
in the debt sought to be collected was known to the party before
the judgment by ordinary proceedings was rendered against him,
and was then available as a defense either at law or in equity,
and he failed to rely on it, but sought an injunction or modifica-
tion of the judgment to the extent of the usury, such party was
not entitled to the relief; but it was held iu the same case that if
he had paid the usury, he might sue for and recover the amount of
the party receiving it {Ghi/rm v. Mitehell, 2 Met. B., 92)» The
same principle was involved in this case as in that before referred
to,decided by the New York Common Pleas.
The Superior Court of the city of New York has held that the
defense of usury cannot be intferposed against the honafide holder
of a negotiable check, although it be invalid between the maker
and payee on that account- And where it appeared that such

check had been paid, partly in money and partly by a new check
substituted therefor, the court held that the defense of usury was
not available in an action on the new check, although it was draiWi
payable to the order of the payee of the original check, and was
indorsed by him in blank at the request of the holder. A question
of practice arose in the case which may have prevented the real
question of usury, but the law was declared, notwithstanding, as
above {Smalley v. Doughty, 6 Bosw. R., 66).
The doctrine is perfectly well settled and familiar that no con-
tract or security, valid in its inception, can be tainted or invalidated
by any subsequent usurious transactions.
A decided authority on the same point is found in a case lately
decided by the courts of New Jersey. An
was brought to
action
foreclose two mortgages, and the defense of usury was interposed.
The usury alleged consisted in the mortgagee's taking more inte-
rest than was due upon them at the time he assigned them to the
complainant, in pursuance of an arrangement with the defendant,

and as a compensation for receiving payment of the debt without
.notice and contrary to a previous undertaking between the parties.
The court held that this did not affect the validity of the mortgages
in the hands of the assignee, and the rule was reiterated that where
the security is valid in its inception, no subsequent taking, or con-

tract to take, illegal interest will invalidate it and it was further
;
held in the case that the only effect of the payment of interest on
the bond to a period later than the date of the assignment, if the
payment is indorsed on the bond or made with the knowledge of
the assignee, would be to diminish by the amount overpaid the
interest which the assignee would be entitled to recover {Smith v.
HolUster, 1 McGwrter's R., 153).
In the State of Kentucky the following case of alleged usury
came before the courts : A note was executed to a guardian, upon
which usurious interest was paid. At the majority of the ward,
the note was assigned to him, and subsequently taken up by the
obligor's executing a new note to him. This last note not being
paid, suit was brought upon it, and the defense of usury inter-
posed. The court held that the usurious interest paid to the
guardian upon the first note could not be made available as a
defense, orby way of counter-claim, to the action upon the new
note {Stone v.McConneU, 1 DwoalVs R., 54).
The courts of Kentucky have also recently held that where a
claim for usury by the defendant in a judgnient against the plain-
tiff existed when the judgment was recovered, it cannot afterward
be the cause for a simple modification of the judgment, But \X
51
402 . LAW OF USURY.
was decidedj nevertheless, that when the plaintiff in the judgment

subsequently became a non-resident of the State, the court has an
ecLuitable jurisdiction to set off' the usury against the. judgment
(Moss Eowland's Executor, 1 DvmalVa B., 321).
V.
The Supreme Court of Wisconsin has held that where a judg-

ment is entered by virtue of a warrant of attprney on a note void
for usury, a court of equity will set. it aside on condition that the
maker pays the amount which the payee would have been entitled
to recover {Lee v. Peokham,, 17 Wis. E., 383).
The Court of Appeals of the State of New York have recently
decided that where A. procures an assignment of a mortgage
given by B. to C. to secure farther advances, and agrees with B. to
extend the, time of payment thereof^ and ma£e a further advance
thereon on usurious terms, the effect of such usurious contract
does not extend to the amount advanced on the mortgage before
the assignment, so as to prevent A.'s obtaining a judgment against
B. for that amount {Kellogg v. Adams, 39 iV. T. E., 28).
In a case recently before the Supreme Court of Pennsylvania, it
appeared that a party borrowed money at a usurious rate of interest,

and gave a note with surety ; that he paid the usurious interest for
several years, when the original note was taken up and another
given for the same amount with a new surety. The court held
that the new security was usurious, and that no more could be
recovered on it than on the original {Comvpbell v. Sloan, 62 Penn.
E., 481).
The doctrine of the authorities, then, is, that no contract or other
security which is valid in its inception can be invalidated by any
subsequent usurious transaction ; and, on the other hand, there is
no possible way by which a contract or other security which is
usurious in its inception can be made good. But the parties to a

usurious transaction may reform it, which can only be done by
canceling the usurious security and giving a new obligation for
the real sum which ought to be paid, excluding all usury ; except
that as to indorsees and holders of such securities, to whom they
were transferred in good faith, for a valuable consideration, and
without notice of the original usury, the whole amount of the
usurious transaction may be secured by a new security, and the
party bound by it ; for in all cases where third persons are inter-
ested in the new transaction, the courts regard it with favor. That
RO long as the usuripus transaction is executory, the original taint
TRE DEFENSE Of USURY. 403
will continue ; but when it is concluded by a judgment, the execu-

tion of a deed, the foreclosure of a mortgage, and the like, the
original usury is not available against the judgment or instrument
by which the transaction is closed up.
CHAPTER XXXI.
USTJEY AS A DEFENSE TO AN ACTION WHO MAT INTEEPOSE THE —
DEFENSE OF TJSTJET —
NONE BUT THE BOEEOWER OE THOSE IN
PEIVITT WITH HIM CAN SET UP THE DEFENSE PAETIES MAT —
ALSO BE ESTOPPED OF THEIB EIGHT TO INTEEPOSE THE DEFENSE.
As a general proposition it may be affirmed that no usurious

transaction will be upheld by the court, and that in no instance
can the holder of a usurious security succeed in a direct attempt
to enforce it. But this is not \h.e' unvoersal rule, and cannot be
said to be correct under all circumstances and between a^ parties.
The doctrine is well settled that the defense of usury can only be
taken by êparfy to the usurious agreement, or persons repre-
senting him as privies in blood or estate. A si/ramger cannot set
up usury as a defense to an action. The maker of a usurious note,
bond or mortgage may pay it, and when it is paid he cannot
recover back the money, except where the statute provides, as
in some cases, that the excessive interest may be recovered back.
So he may agree with another for a valid consideration to pay it,
and in that case the person agreeing to pay it cannot resist the pay.
ment on the ground of usury. He may also set apart and dedicate
a certain fund or certain specified property to the payment of the
usurious security, and his agent, who has received the funds with
which to pay it, cannot withhold it on the ground of usury. It is
in all these cases the party who owes the debt, and who devotes
his property to pay it, that can alone set up the defense of usury.
If for any reason —

^his desire to avoid litigation, his pride of charac-
ter, or his conscientious sense of justice he may be induced to—

waive his legal rights and to satisfy a demand, he is at liberty to
do so, although it may be obnoxious to the defense of=usury. And
whenever he sees fit not to set up the defense of usury against
such a demand, and makes provision for its payment, no stranger,
though be be agent or trustee, who by express or implied agree-
404 LA W OF USURY.
ment has assumed the agency of making this payment on hehalf

of the debtor who furnishes the funds for that purpose, can put
the funds in his pocket and set the holder of the demand at defiance.
These principles are well settled by a large number of authorities,
a few of which only need be examined.

That usury is a good defense for the party to the illegal agree-
ment is universally acknowledged and, so far as that is concerned,
;
the mere statement of the fact is all that is called for. But in '
respect to other or third parties a different principle prevails ; and

as to theni, the question should be discussed and the authorities
examined.
The late Court of Chancery of the State of New York held that
the surety in a usurious contract has a right to set up the defense
of usury to a suit brought against him and the principal debtor in
such contract, and to file a biU. in equity, if necessary to establish
the defense, although the principal debtor refuses to join as a com-
plainant in the bill. But it was decided that he had no right to
make the principal debtor a complainant in the suit without his
consent ; that the only remedy in such case was to make the party
having a common interest with the complainant who wishes to file
a bill for relief, a party defendant, alleging, as an excuse for doing

so, that he would not consent to join as a complainant in the suit.
But the principle settled by the authority, pertinent to the inquiry

here, is, that the surety in the usurious contract may interpose the
defense of usuiy as well as the principal in the contract {Monk v.
Sovey, 9 Paiges B., 197 ; cmd vide DvmscornJb v. Bunker, 2 Md.

R., 8).
So, also, the same learned court held that the owner of land,
who has given a usurious mortgage thereon, may sell or mortgage
the land to another, generally, and give to the purchaser or mort-
gagee the same right to contest the validity of the first mortgage
as he has himself But it was declared that he may affirm the
validity of the usurious mortgage by selling the equity of redemp-
tion in the mortgaged premises only, or by selling or mortgaging
the land, subject, in express terms, to the previous mortgage, in
which case the purchaser or subsequent mortgagee wiU be entitled
to the equity of redemption merely, and cannot impeach the
validity of the prior mortgage.
Walworth, Chancellor, said " In the ordinary case of the giving
:
of a usurious mortgage by the owner of the mortgaged premises.

TBE DEFENSE OF USUBT. 405
the statute having declared the usurious security void, the owner
of the premises of course has the right to sell his property or
mortgage the same, as though such void mortgage had never
existed. And the purchaser in such case necessarily acquires all
the rights of his vendor to question the validity of the usurious

security. For if the original mortgagor had not that right, the
premises would, to a certain extent, be rendered inalienable in his
hands, notwithstanding the incumbrance thereon was absolutely
void as to him. He may, however, if he thinks proper to do so,
elect to affirm the usurious mortgage by selling his property sub-

ject to the payment or to the lien of such mortgage. And the
purchaser in that case takes the equity of redemption merely, and
cannot question the validity of the prior mortgage on the ground
of usury " {Shufelt v. Shufelt, 9 Paige's B., 137, 145).
And the Supreme Judicial Court of Massachusetts long since
decided that the purchaser of an equity of redemption cannot
avoid the mortgage on the ground of the same being usurious
(Green v. Kemrp, 13 Mass. S., 515 Bridge v. SuHba/rd, 15 ib.,
;
96, 103).
It was held by the late Court of Chancery of the State of New
Tork that where a party who has confessed a judgment, voluntarily
waives his defense or remedy upon the ground of usury, a subse-
quent purchaser of the land, upon which the judgment is a lien,
cannot impeach it for usury, as where the judgment debtor filed a
bill for relief, but afterward consented to a decree dismissing it
with costs [French v. Shofwell, 5 JoJvns. Gh. R., 555 ; aff/rmed iy

the Gmrt of Errors, 20 Johns. B., 668).
And the same learned court, in a later case, laid down the well
settled rule, that a naere stranger cannot insist upon the invalidity
of a usurious security. But it was held that the defense of usury-
may be up by any one who claims imder the mortgagor and in
set
privity with him and further, that a subsequent judgment credi-
;
tor may defend upon the ground that the mortgage is tainted
with usury and that the decree in his favor, where the bill is
;
taken as confessed by the mortgagor, is that the bill be dismissed

as to the creditor, thereby waving the lien of his judgment. And
it was declared and held that a purchaser of land, who takes it by
the terms of his conveyance, subject to a mortgage, cannot set up

usury in the mortgage to avoid it {Post v. Dart, 8 Podge's B.,
;
406 LAW OF VSURT.
639 and vide Cole v. 8a/oage, 10

; ib., 583 ; and Lffoett v. Dimond,
4 i:dnj). Oh. R., 22).
And in a still later case, in the. same court, it appeared that A.
bid in land at a master's sale, and had the deed made
to C, upon
an agreement that it should be security for a loan
and C, with ;
A.'s concurrence, conveyed the land to 'S., taking his bond and
mortgage for the security of the lender and it was held that S. ;
could not avail himself of usury in the loan {Stoney v. American

Life Insurance Company, 11 Padge^s M., 635 amd vide Wells v. ;
Ohapman, 4 Sand. Oh, E., 312, affi/rmed, 13 Barb. B., 561).

The old Supreme Court of the State of New York, in a well-
considered case, laid down the rule substantially thus : A deed or
contract can only be avoided for usury by the party who made it,
orby some one standing in legal privity with him, and not by a
mere stranger to the transaction. One who is privy in repre-
sentation, as the executor, or in blood, as the heir, may set up
usury ; so also may one who is privy in estate, as the guarantor
of him who made the usurious conveyance. In short, a mere
stranger, or one who has no legal interest in the question, shall
not ofiiciously intermeddle in the matter, and take advantage of a

statute which was not made for his benefit. But it was held in
the case that a creditor who has obtained a judgment and execu-
tion cannot be regarded as a mere stranger. He may seize and
sell the property of his debtor, and try the title of any one who
sets np a prior lien or incumbrance affected by usury {Din} v. Van
Wyck, 2 HilVs H., 522 ; and vide Jackson v. TutUe, 9 Cow. R.,
233).
And the Supreme Court of Connecticut laid down the rule
that a mere stranger to a conveyance cannot avoid it for usury
{Reading v. Weston, 7 Conn. R., 409). And in a quite recent
case the same court declared that it had been repeatedly held that
usury is a merely personal defense ; that it is optional with the
debtor to take advantage of the statute or not ; that the statute
was intended for the protection of the debtor, and for him alone
(Loomis V. Eaton, 33 Conn. R., 550).
The Supreme Court of Alabama has very recently held, in
accordance vîth the general rule, that usury is a personal defense
and was declared that, within the rule, a judgment creditor of
it
the borrower could not take advantage of usury agreed to be paid

by the latter {Ba/rhv,s v. Calhoun, 45 Ala. R., 582). And in
TSE DEFENSE OF USURY. 407
another case, decided about the same time, the same court held
that a debtor may pay a usurious debt, and convey property to
the creditor for that purpose ; and that the debtor alone can avail
himself of the usury (Fielder v. Vamer, 45 Ala. E., 429).
The Court of Appeals of the State of New York, at an early
day, regarded the question as well settled, that a purchaser of
mortgaged premises generally, and not merely of the equity of
redemption, may set up the defense of usury against the mort-
gage (Brooks V. Avery., 4: JV. Y. B., 225). But quite recently,
the same distinguished court declared that it had long been held,
.
and should now be deemed settled in the State of New York,

that a usurious agreement cannot be assailed by a stranger, that
is, one not a party to it, nor claiming under the party injuriously
affected by it {WiUiams v. Tilt, 36 Iif. T. R., 319).
The Court of Appeals of the State of New York have also held
that even the right of privies to the usurious agreement, to set up
usury against such agreement, may be cut off by the waiver of the
original party. So held in a case where it was decided that privies
who accept a lien upon, or interest in, the equity of redemption of
mortgaged premises, as mortgagees or purchasers, Expressly subject
to the lien of the prior mortgage, cannot avail themselves of usury
in such mortgage, in defense to a suit for its foreclosure {Scmds v.
Chwrch, Q JV. Y. R., 347). And the Supreme Court of the State
had previously held that the defense of usury is not so personal but
that the debtor's grantee may and yet held that such
set it up,
defense is so far personal that the debtor may waive
it, and that,
hj granting subject to the debt, he does waive it, so that the grantee
cannot avail himself of it. The language of the court is :
" The
defense of usury may be waived by the mortgagor or subsequent
owner, so that a subsequent purchaser cannot set it up, or, in other
words, he may waive it, so as to bind his grantee" {Morris v.
Floyd, 5 Barb. R., 130; omd vide The Mechamics' Bank v.
FdAJoa/rds, 1 ib., 271).

A case was decided by the late Court for the Correction of Errors
in the State of New
York, where the mortgagor sold the mort-
gaged premises, and deducted from the price agreed to be paid for
the premises the amount due on the mortgage previously given by
him; and it was held that the purchaser on a judgment subse-
quently obtained against the vendors of the mortgaged premises,
who had notice that the judgment debtors had only purchased the
'
408 I'AW OF VSUBT.
mere equity of redemption, could not interpose the defense of

usury to the mortgage {Ferris v. Crawford, 2 Demo's M.; 598 •
hut vide Berdan v. Sedgwick, 40 Barh. R., 359).

The Supreme Court of the State of Indiana has held that usury
cannot be set up as a defense against a mortgage by a purchaser of
land subject to the mortgage and laid down the rule that usury is
;
a defense personal to the borrower and his heirs or representatives,

and to them only but held that if, in a suit to foreclose a mort-
;
gage tainted with usury, the borrower be made a party, he may set
it up as a ground of equitable relief to himself {Stephens v. Mim,
8 Ind. R., 352 ; cmd vide Wright v. Bundy, 11 ib., 378).

In the State of New Hampshire it has been held that the pur-
chaser of an equity of redemption may avail himself of the defense
of usury paid by the mortgagor, in a suit of entry on the mort-
gage {Gunnison v. Oregg, 20 JSF. H. R., 100).
was held by the Supreme Court of Mississippi that a purchaser
It
of a contract of land, upon which there was an incumbrance to
secure a debt due from the vendor, was not "bound by his contract
to discharge the balance of the debt topay more than was legally
due and that he might make the same defense as to usury that the
;
vendor could have made {McAllister v. Jerrrwn, 32 Miss. R., 142).

•The Supreme Court of the State of Illinois has decided, in general
terms, that parties or privies to a usurious transaction have the
right to avail themselves of the defense of usury {Swfford v. Ya/H,
22 III. R., 327).
It seems that in most of the cases where the grantee of. mort-
gaged premises, or those holding under him, have not been per-
mitted the defense of usury to a previous mortgage, are cases of

conveyance by the tnortgagor, where he himself has either deducted
the amount of the mortgage from the price agreed upon for the pre-
mises, or has sold, in terms, subject to the mere equity of redeeming
them from the lien of the previous mortgage. In such cases, it is
quite obvious, upon principles of equity, that the grantee of the

mortgagor ought not to set up a defense which his grantor had
waived, and, by deducting from the price or value of the premises
the amount of the previous mortgage, had provided him with the
means of payment. Under such circumstances, it is quite obvious

that the purchaser ought not to be permitted to avail himself of a
statute not intended for his benefit.
A usurious contract has been held not to be absolutely void, but
TBM DEFENSE OE USUBT. 409
oiily voidable, at the election of the borrower or those who are
privies in interest or in contract with him. This doctrine has been
repeatedly declared, even under the stringent provisions of the New
York statute of usury and, hence, no other party or parties than
;
those named can be permitted to make the objection that the con-
tract is usurious.
The Court of Appeals of the State of New York have recently

laiddown the unqualified proposition that the defense of usury can
be set up only by the party bound by the original agreement to
pay the sum borrowed, or by the sureties, heirs, devisees or per-
sonal representatives of such party.
Davies, J., delivered the prevailing opinion of the court, and,
among other observations, said : "But this defense or objection to
the contract, that it is void on account of usury, can only be alleged

or set up by the party bound by the original contract to pay
the sum borrowed, or his sureties, heirs, devisees or personal
representatives {Post v. Bank of UUca, 7 Hill, 391 ; Mechanics'
Bamk Edwards, 1 Ba/rh. 8. C, 271). And I entirely concur in
v.
the views expressed by Barlow, Senator, in Post v. BamJe of Utica

{suâ), where he says I concede that remedial statutes are to be
:
'
construed liberally, but I cannot concede that a statute is reme-

dial which creates not only a forfeiture of the money lent, but
renders the party violating its provisions guilty of a misdemeanor,
and punishable by fine and imprisonment. On the contrary, it
appears to me that such a statute is penal in its character, and
'
subject to a strict construction " (Billington v. Wagoner, 33 Jf.
r.X 31, 34).
And the Supreme Court of Alabama has decided that statutes
of usury confer a personal privilege upon the borrower, which he
may waive, and that, if he does, no third party can take advantage
of it (Cook T. Dyer, 3 Ala. B., 643). But the same court decided
in a late case that, although the plea of usury is a personal
privilege, intended for the benefit of the borrower, his surety or an
accommodation indorser may also take advantage of it ((rT-oy. v.
Brown, 22 Ala. B., 262).

The Supreme Court of the State of New Hampshire has held that
the defense of usury is personal, and that as against a 'subsequent
purchaser only the amount of illegal interest is to be deducted
from the amount due upon a mortgage \Ladd v. Wiggin, 35 iT.
S. B., 421).
52
.
410 J^-^W OF USURY.
And the Supreme Court of Indiana has decided that a party in no

way aifected by a usurious contract, and an entire stranger to it,
should not be permitted to take advantage of usury between othei

parties, in order to avoid a contract legal and valid, entered into
by himself {Guiohen v. Coleman, 13 Ind. R., 568). And to the

same effect is a decision made by the Supreme Court of the State
of Vermont, in which it was declared that laws against usury are
for the protection of the borrower, and that he alone can take
advantage of them {Austim, v.. QMttend&n, 33 Vt. H., 553 ; and
vide Stein v. IndiamapoUs, etc., Ass., 18 Jnd. H., 237; Cam v.
Gimon, 36 Ala. R., 168 yZoorms v. Eaton, 32 Conn. 5., 550;

Ransom v. Says, 39 Mo. R., 44:5 Draper v. Emerson, 22 Wis. ;
R., 147).
Upon these principles it has been expressly held that under no
circumstances can the usurer himself make the objection of usury
available in any suit or proceeding in which he is a party. On
this point the Court of Appeals of the State of New York, by
Ruggles, Ch. J., said :
" The taking of usury is a misdemeanor by
statute, and the agreement to take it is, in the eye and in the lan-
guage of the law, corrupt.. The parties,' however, do not stand i/n
p(fri delicti. It is oppression on the one side and submission on
the other. The borrower, therefore, may set \vp usury for the pur-
pose of avoiding a contract tainted with it ; but the lender cannot.
In respect to this question, usury must stand on the same footing
as fraud. A fraudulent contract cannot be avoided by the party
guilty of the fraud. A party to a fraud is estopped from setting
it up to his own advantage but ; if his opponent alleges and proves

it as a part of his own case, the guilty party will then be entitled
to the benefit, while he incurs the disadvantage resulting from such
a state of things. * * * AH the proof, therefore, offered by
the plaintiff to show the bond and mortgage void for usury was
rightfully excluded by the judge at the circuit " {Zafarge v. Serter,
9 JV. Y. R., 241, 243, 244).
And and was decided in a case in
this precise question arose
South Carolina. It was an action of debt on bond. The, defense
was that the defendant had conveyed certain lands to the plaintiff,
in satisfaction of the bond debt. The plaintiff's answer to the
defense was, that the lands were conveyed in pursuance of a corrupt
and usurious agreement, by which the lands were to be reconveyed
to the defendant on payment by him of the bond debt, with four-
;;
TBE DMFENSE OF USUBT. 411
teen instead of seven per cent interest thereon, within two years
that the conveyance of the land, being made on a usurious con-
tract, was void, and the bond therefore unsatisfied.
Johnson, J., delivered the opinion of the court, and said :

" It is
a clear and well established rule of law that no one can take
advantage of his own wrong. He who
law comes with
violates a
a bad grace to ask to be restored to rights which he has surren-
dered by his illegal act and for this reason he who pays money on
;
an illegal consideration cannot maintain an action to recover it

back. And what is the case here ? The defendant was indebted
to the plaintiff by bond. The plaintiff accepted lands in payment,
and he now asks to be released from his last contract and to be
restored to his rights on the bond, upon the ground that, knowingly
and willingly and in violation of the statute against usury, he has .
annulled the debt due on the bond. According to the rule, he

cannot be permitted to do so " {Miller v. Kerr, 1 Bayley's R., 4).
The Court of Appeals of the State of New York have lately

held that after an account containing, among other items, a charge
of the sum paid to take up a note made by the debtor, has been
rendered to the debtor, and its correctness conceded by him, and
the account has become a stated account, neither the debtor nor
his assignee can assail the note for usury when the same is brought
forward as a set-off by the party rendering the account. And the
rule was reiterated that usury is a defense personal to the party
known as the borrower, and it was affirmed that he cannot transfer
to another the right he has to allege and prove a demand to be

usurious.
MuUin, J., who delivered the leading opinion of the court, said
" I think the assignee of the demand in suit can resist it for usury,
unless his assignor has, by his acts in reference thereto, precluded
him. ISTo rule of law is better settled than that the purchaser of
property, charged with a usurious lien or claim, can allege the
usury and defeat the claim where the purchaser sold discharged
of such usurious lien. * * *
The principle must embrace
personal property as well as real and the right of the vendee to
;
avail himself of the usury in the dealings between his vendor and a
third person, touching the property, must reach every case where
such third person attempts to appropriate the property purchased
by virtue of any usurious contract with the vendor.
" The case before us affords a very apt illustration of the necessity
;;
412 L-AW OF USUBT.
of extending the principle to this class of cases. * * * If the

usury laws are to be enforced so as to prevent usury, they must not
leave a door open through which the usurer can insert his finger.
If an opening is left, he will soon have his whole body through.
If stating an account wiU prevent investigation into a usurious
transaction, all dealings into which usury enters wiU soon take
the form of stated accounts, and the law be made a shield instead
of a sword.against violators of this wholesome and necessary law.
* * * The only way a third person can avail himself of usury is
by purchasing property charged with alien or incumbrance which is
usurious, and then only in protection of his title " {jBuUard v. Bay-
nor, 30 W. Y. B., 197, 200, 202, 203 ; cmd vide Ba/rrow v. Bhme-
lander, 1 Johns., Oh. B., 550 ; S. C, m error, 17 Johns. B., 538
Bullock V. Boyd, Hoff. Ch. B., 294 PhUUps v, BeUen, 2 Edw.
;
Ch. B., 1 ; Burke v. Avery, i iT. Y. B., 225 ; Matthews v. Coe,

66 Barb. B., 450).
But the Court of Appeals of New York, so late as September,
1871, decided and held that a grantor of real estate is not pre-
cluded from setting up the defense of usury to a prior mortgage
by the recovery of a judgment against the mortgagor upon the
accompanying bond, such recovery being had subsequent to his
purchase. And it was further held that when the purchaser by
agreement with his vendor executes a bond and mortgage to secure
a portion of the purchase money equal in amount to a prior usuri-
ous mortgage upon the same premises, and places them in the
hands of a third person to be delivered to the vendor if the latter
succeeds in setting aside such prior mortgage ; but if he fails in
so doing, to be disposed of to pay off such usurious mortgage, their

proceeds to be delivered to the purchaser for that purpose ; this
is not such an assuming of the usurious mortgage, or purchase sub-

ject to it, as will estop the purchaser from himself setting up the
usury {Berdan v. Sedgwick, 44 If. Y. B., 626). These are
important considerations, and not entirely impertinent tothe point
under consideration.
By New York, passed in 1850, the con-
a statute of the State of
borrowing money and agreeing to pay more
tracts of corporations
than seven per cent interest are legal and binding upon them
and the Court of Appeals of the State have held that the guarantors
of 'Such contracts are liable upon their contracts of guaranty. In
other words, that when upon a loan of money to a corporation,
;
THE DEFENSE OF TTSURY. 413

the defense of usury is unavailing to the corporation, it is alô
unavailing to its sureties {Rosa v. Butterfield, 33 M. Y. B., 666).

The Supreme Court of the State of New York has decided that
who have accepted the trust created by
the assignees of a debtor,
an assignment for the benefit of creditors, have no right to refuse
the payment of a debt, specifically directed to be paid in the
assignment, on the ground of its being usurious, in the absence
of any request or authority to them from the assignor, or from
any creditor provided for in the assignment to refuse such pay-
ment, and where the assignees are not themselves creditors of
the assignor. And this upon the principle that the defense of
usury can only be set up by a party to the usurious contract, or
one who represents him, as a privy in blood or in estate {Green v.
Morse, 4 Ba/rb. B., 332).
The same learned court held in a later case, where it appeared
that a trust estate, being encumbered by a valid mortgage, upon
which a decree of foreclosure had been obtained, the trustees
effected a loan from a corporation, for the security of "which the
mortgage and decree were assigned to the lender who paid the
mortgagee's demand the mortgage was not discharged, but was
;
kept on foot for the benefit of the lender the loan was usurious,
;
and was illegal, as being contrary to the charter of the corpora-

tion 'that notwithstanding the usury and illegality of the loan
;
the mortgage and decree remained valid, and were neither

extinguished nor merged, but were unaffected by the usury
and illegality of the contract upon which they were assigned.
And it was also held that the trustees could waive the usury and
illegality for the benefit of the estate and that having procured
;
a transfer of the mortgage and decree from the corporation, they

could enforce the same ( Wells v. Chapman, 13 Barb. B., 561).
So, also, the same court held, in a very late cas6, that a chattel
mortgage can be avoided for usury by a judgment and execution
creditor of the mortgagor. And it was declared that a person
who, like an execution creditor, asserts a lien upon mortgaged
property is not a stranger, within the meaning of the rule that
the defense of usury is a personal one, and cannot be pleaded by one
having neither privity of estate nor of blood with the borrower
that is to say, by a mere stranger {Garden v. Kdly, 59 Ba^b. B:,
239). This is in accordance with the decision of a case in the

Court of Appeals of the State, wherein it was held, in general
414 LAW OF USXJRT.
terms, that any party having a lien on a chattel may avoid for
usury a mortgage claiming priority {Thompson v. Vwn Yechtm,
27 N. Y. B., 568). And this is also in harmony with the doctrine
laid down in a well considered case decided hy the old Supreme
Court of the State, and among the very last of the cases decided
by that distinguished couvt. {Schroeppel v. Corning, 5 Denio's £.,
236).
So, also, the Superior Court of the city of New Tork has declared
that where an action is brought at law on a contract, or in eq[uity
upon securities which are collateral to the contract, either the one
owning the property, or having a lien thereon by mortgage or
execution, may interpose the defense of usury where it exists, as
a matter of strict right ( Vide Chamberlain v. Dempsey, 14 Abh.
Fr. R., 241 8. C.,% Bosw. R., 212). This was so held at the
;
General Term of the Superior Court but the Court of Appeals

;
reversed the judgment of the General Term, and affirmed the

final- judgment of the Special Term thus confirming the rule as
;
heretofore laid down, that no one but a party to a usurious loan,

or his heirs, devisees or personal representatives, can avoid a
usurious contract on account of usury {Chamberlain v. Dem/psey,
36 If. Y. R., 144 and vide Bullard v. Raynor, 30 ib., 197,
;
206 Hartly v. Harrison, 24 ib., 170 Ohio and Mississippi

; ;
Railroad Gompamy v. Kasson, 3T iS., 218). It is held that any

party having a lien on a chattel may avoid for usury a mortgage
claiming priority {Thompson v. Van Vechten, 27 JSF. Y. R., 568).
And the same rule applies in case of mortgages of real estate
(Mutual Lnfe-Inswra/nce Convpa/ny of New York v. Rowen, il

Barb. R., 618).
The Court of Appeals of the State of Maryland has held that an
assignee in legal privity with the mortgagor might avoid the eon-
tract for the excess of usury,and is entitled to the proper reduc-
tion, on the mortgage debt {Banks v. McLellan, 24 Md. R., 62).
Akin to this same doctrine is that laid down by the Court of
Appeals of the State of Jêw Tork, in a case recently decided, in
which it was declared that an assignment of a lease, which assign-
ment was absolute on its face, but in fact given as security for a
usurious loan, may, in the hands of a purchaser of such lease from
the usurious assignee, with notice that the original assignment
was security for a loan, although without notice of its usurious
character, be avoided for usury, by a judgment creditor of the

THE DEFENSE OF USUBT. 415
original lessee. And itwas held that one holding a sheriff's

deed given upon a sale of the interest of the lessee, under judg-
ment and execution against him, may maintain ejectment against
such purchaser in possession of the premises under his purchase,
from the usurious assignee of the lease and that this was so ;
where judgment was previously perfected, although the pur-

.the
chase of the lease was effected by payment to the usurious assignee,

a reassignment by him to the lessee, and assignment from the
latter direct {Mason v. Lord, 40 N. Y. E., 476 and vide Post ;
V. Bwrt, 8 Paige's P., 632 Pix v. Van Wyck, 2 SiWs P., 522).
;
But the Court of Appeals of the State of New York, as late as

September, 1871, held that, in an action for the foreclosure of a
mortgage upon real estate, an answer alleging that the defendant
having entered into a contract with the plaintiff for the purchase
of the premises, made a usurious agreement with one D., by
which, in consideration of usurious loans, he transferred his
interest in the contract and directed the plaintiff to convey to D.,
who with the defendant's eonseiit, executed the mortgage in ques-
tion as security for purchase-money, and that the plaintiff" had
notice of such usurious agreement before he took the mortgage,
but without alleging that the plaintiff was a party to or in any
way benefited by the agreement with D., states no defense. It
was declared that the usury, as between the defendant and D.,
could not be set up to defeat or delay the plaintiff's right under
the mortgage which he received with the defendant's consent, and
to recover moneys justly due {Kay v. Whittaker, 44 ' N. Y. P.,
565).
The doctrine seems to be well settled by the authorities that a
party having no connection with the usury, who, by the direction
of the mortgagor of a usurious mortgage, conveys to the assignee
of the mortgagor and receives a mortgage for the money justly due
him, cannot be affected by the usury between the original mort-
gagor and his assignee ; that such usury cannot be set up to defeat
the mortgage of the party first named. And the rule is a familiar
one that where the owner of land iliortgages it to secure the pay-
ment of a debt, and afterward sells and conveys the equity of
redemption subject to the lien of the mortgage as a portion of the
purchas&'money, the latter becomes personally liable for the pay-
ment of the debt of the former to the holder of the mortgage, and
in such case it is, therefore, quite clear that the purchaser of the
416 LA-W OF USUBT.
mortgaged premises cannot set up the defense of usury against

such mortgage, and thus obtain an interest in the land which the
mortgagor never agreed or intended to transfer to him. Several
of the authorities heretofore examined hold to the doctrine in the
plainest possible terms, and other cases need not be referred to on
the point.
In the State of Iowa, in a case before the Supreme Court, it
appeared that the defendant gave a note (usurious) in part, secured,
by trust deed of real estate. The mortgage was foreclosed. After-
ward the agent of the mortgagor negotiated for the resale of the
property at the amount of the usurious note with interest. The
mortgagor paid down the greater part of the price, and gave his
own note to the agent for the balance and the court held that
;
the maker of this last note could not avail himself of the defense
of usury to defeat a recovery upon it (Swits v. Plats, 15 Iowa
B., 362).
The old Supreme Court of the State of If ew York held, where
a bond was given conditioned to save harmless and indemnify the
obligee against his liability as the maker of a promissory note then
held by a third person, and to pay the same or cause it to be paid,
that the obligor in the bond could not, in an action upon it, set up
usury in the note.
Beardsley, J., in his opinion, said: "The defendant had no
right to set up that the note was usurious, although the defense
might have been interposed by the plaintiffs in the action brought
against them on the note. This bond was given to the plain-
tiffs, by whom the note had been made, and not to the supposed
usurer, whoever he may have been, nor was the payment to be

made to such supposed usurer ; for the note, as the condition of the
bond shows, had been transferred to Clark & Sharp, who then held
it, and the obligors were bound that it should be paid without
delay. Their engagement to the plaintiffs was equivalent to ^n

absolute promise to pay them the amount of the note and on no ;
principle can I see that the obligors in the bond had any concern
with the question of usury. Their engagement was with the
plaintiffs. It was an engagement to pay the amount of a certain
note given by the plaintiffs and then held by Sharp & Clark, and,
in my opinion, the defendants were clearly bound to meet the pay-
ment according to their covenant, whether the plaintiffs were liable
to Sharp ^ Clark or not. What concern had these obligors with
THE DEFENSE OF USURY. 417
that question? They were not the victims of a usurer, nor were
they held upon a usurious obligation. If the bond had been a
mere bond of indemnity, a different question would have been
presented but being an absolute engagement to pay, I entertain
;
"
no doubt that the alleged defense of usury was properly excluded
{GhwohiU V. Svm,t, 3 Denio's E., 321, 324, 325).
From the authorities, it seems to be decided that the policy of
the statute of usury is the protection of borrowers against oppres-
sive exactions by lenders. It is not essential to the promotion of
this policy that other persons than the victims of the usurer or
persons standing in legal privity with him should have the benefit
of the statute, and hence the rule that the objection of usury cannot
he raised by a mere stranger to the usurious transaction. And
it has- been expressly declared that if the borrower prefers, for any
reason, to abide by his agreement, he will be permitted to do so.
He will not be compelled to accept the aid of the statute of usury

against the convictions of his judgment and conscience, and When-
ever he has waived the benefit which the statute prefers, no one
else can make it available in his â.c& {Vide, further, Mwrrwy v.
Barney, 34 Ba/rb. R., 336).

In several bf the States, as in ITew York, statutes exist declaring
that no corporation shall interpose the defense of usury in an
action. And where this is the law, it is held that the prohibition
extends not only to the corporation itself, but that it bars equally
an accommodation indorser of a corporation ; in other words, when
upon a loan of money to a corporation the statute makes the defense
of usury unavailing as to the corporation, it is also unavailing to its
sureties. The effect of the statute would seem to be, that the con-
tracts of corporations, wiiere such a statute exists, can in no case be
usurious, and hence the guarantors of such contracts are the guaran-
tors of legal contracts ; and if so, of course, they cannot interpose
the defense of usury in an action to enforce them ( Vide Hosa v.
Butterfield, 33 N'. Y. R., 665).

And it has been held that such an act will estop the receiver of
a corporation, which represents both the corporation and its cre-
ditors, from interposing the defense of usury against the obliga-
tions of the corporation {Curds v. Leavitt, 15 N. Y. R., 230, 296).
Indeed, it is held that such an act operates j?to tanto as a repeal of
the statutes prohibiting usury, so far as they are applicable to
stipulations for a rate of interest exceeding a legal rate," where a
53
418 LAW OF usunr.
corporation is the borrower (JBelmont Brdmch Ba/rik v. Soge, 35

N. Y. R., 65).
In some cases parties to usurious paper may be estopped from
interposing the defense of usury in an action brought to enforce
it by reason of representations which they may have made in
respect to the character of the paper, on which iimocent parties

may have acted. For example, when a party to accommodation
paper sells it as business paper at a usurious discount, it has
been said that he is estopped from setting up and proving that the
paper was not of the character represented. That is to say, it has
been repeatedly held by the courts of New York that the,dt)etrine
of estoppel applies to one who represents a note which he is about
to sell to be business paper, when, in fact, it is not, so as to pre-
clude him from setting up the defense of usury. The late Chan-
cellor Walworth is reported to have said, in a case decided by him

in the late Court of Chancery of the State of New York, " that
when- the holder and apparent owner of negotiable securities sells
them at a discount to a hondkfide purchaser, who has no knowledge

of the purposes for which such securities were made, the holder
representing such securities to belong to himself and to be busi-
ness paper, the transaction was not usurious as between the vendor
and vendee ; although the representation of the vendor was
false and the securities were, in fact, made for the sole purpose of
being sold at a usurious discount in the market " {Hohnes v. WU-
liams, 10 Paige's E., 326).
But, with deference, it may be suggested that the statement of the
learned chancellor does not contain quite enough to constitute an
estoppel in the case supposed. The principle upon which an estoppel
in pais is permitted, requires the additional fact in the case sug-
gested that the the representations were made with the design to influ-
ence the conduct of the purchaser and to induce a purchase of the
securities and
; that the purchaser confided in, and in good faith
acted upon the
representations. That is to say, the party must
have been actually deceived by the representations, and acted under
that deception. Where all these facts exist, the party transferring
the security cannot be heard to set up usury to defeat a recovery
upon any obligation which he may have assumed on making the
transfer. This doctrine from a well consi-

is clearly deducible
dered case decided by the present Supreme Court of the State of
New York soon after it was organized, in vbich the prevailing
"
TBE DEFMNSE OF VSVBT. 419
opinion was delivered by Sill, J., and the whole question fully
examined and discussed {Vide Truscott v. JDmis, 4 Barb. B.,
495. Ferguson v. JELtrniiltorh, 35 lb., 427).

The old Supreme Court of the State of New York held, inci-
dentally, that when the payee of a usurious negotiable promissory
note sold the same and informed the holder that was business
it
paper, and guaranteed the payment of it, upon the guar-

in a suit
anty he could not set up usury to defeat a recovery {Dowex. Shutt,
2 Dmio's B., 621). And Justice Gierke remarked, in giving the
opinion of the present Supreme Court of the State in a case before
the General Term of the first judicial district :
" It has been set-
tled in this district at General Term that a party to accommoda-

tion paper who sells it as business paper at a usurious discount, is
estopped from setting up usury as a defense. It is not necessary

or proper to consider the reasoning and principles upon which this
decision was founded. Although I took no part in it, I shall, of

course, deem it obligatory upon all the members of the court
{Jackson v. Fassitt, 33 Ba/rb. B., 645, 647).
The learned judge does not give the title of the case to which
he refers, but he doubtless has reference to a case decided in 1858,
where it appeared that the maker of a promissory note annexed
thereto a certificate that the notewas given for value and would
be paid when due and the note was afterward sold to a third
;
person for an amount less than should have been paid for it if dis-
counted at legal interest, and the court held that the maker was
estopped by the certificate from setting up the defense of usury.
Ingraham, J., delivered the opinion of the court, and said :
" It
has been repeatedly held, and must be considered as the settled law
of this court until otherwise decided by the Court of Appeals, that
the doctrine of estoppel applies to one who represents a note, which
he is about to sell, to be business paper, when, in fact, it is not, so
as to preclude him from setting up the defense of usury. * * *
In, the present caseno one but the defendant, who is both maker
and indorser, is by the application of the rule and there
affected ;
is no hardship or injustice in saying to him that he cannot deny
now what he represented the note to have been when the plaintiff
was induced -to purchase it. A
contrary rule would hold out to
men a temptation to deceive others by falsehood^ and then allow
them to take advantage of such falsehood to escape the liability so
incurred " {Chc^mberlin v, Townsmd, 7 -Abb, Pf, -S., 31 ; 8, C„
;
420 IiAW OF USURY.
26 Barb. B., 611). The case is mistakenly reported in Barbour as

having been decided at Special Term, whereas it was disposed of
at General Term, as reported in Abbott. No other case of the
tenor and effect stated by Judge Gierke seems to be reported as
having been decided in the first district; and it will be observed,

from the opinion of Judge Ingraham, that this case does not stop
quite as short as is supposed by Judge Gierke. It is plainly to be
inferred, at least, that the certificate in the case was annexed to
the note to induce the purchaser to take it ; and that the purchaser,
in good faith, relied
upon the representations contained in the cer-
and took the note upon the strength of them.
tificate,
But the Gourt of Appeals of the State of New York have decided
that, to estop the parties to a bill of exchange by their representa-
tions in respect to its consideration and validity, such representa-
tions must be outside of the face of the bill ; that is to say, t -
t
the recital in the bill of value received, and its indorsement, did
not estop the acceptor or the indorser from proving that the accept-
ance and indorsement were for the accommodation of the drawer,
and that the bill had no inception imtil its usurious discount by
the plaintiff.
The learned counsel for the plaintiff labored ingeniously to bring
the case within the rule in respect to estoppels in cases of usury
arguing that if a party misrepresents facts, or, by his silence, allows
another to act upon a mistake of facts, he is thereby estopped from
setting up those facts afterward to the prejudice of the person who
has been misled that his silence binds
; upon the same prin- Mm
he had, by express misrepresentation, misled the other
ciple as if
party and that in both cases he is estopped upon equitable prin-
;
ciples from denying the truth of the facts upon which the other
had been induced by such misrepresentations or silence to rely.
But the court did not think the doctrine applicable, in cases of
usury, to the extent argued by the counsel.
Gomstoek, Gh. J.,. in rendering the opinion of the court, said:
" It is true that the words
value received were a part of the
'
'
instrument and tbese words imported that the bill was drawn and
;
accepted for value in the hands of the drawer or acceptor. It may

also be assumed that the plaintiffs supposed they were purchasing
an obligation, which bound the parties before they advanced their
money upon it. But these circumstances do not relieve the case.
Neither the drawer nor the acceptor niade any representations to
THE ACTION FOR USVRT. ,
421
the plaintiffs beyond the language contained in the contract itself.
But if the very words of a contract are to be taken as a representa-

tion of facts which estops the party who makes the obligation from
interposing a defense inconsistent with that representation, then all
contracts must be deemed valid which appear to be so on their
face ; and not only usury, but duress and fraud, can no longer be
alleged. Such is not the rule of law " {Clarh v. Sissonj 22 M. T.
B., 312, 316).
The Supreme Coui't of Iowa has held that the maker of a usurious
note estopped from setting up the defense of usury thereto
is
against one to whom he has assigned it, representing that " it was
all right, and no usury in it," unless the assignee did not believe
the representation {OalloMan v. Shmv, 24 Iowa R., 441).
These authorities indicate very clearly the cases in which usury
may be interposed as a defense to an action, and the parties by
whom a usurious contract or security may be impeached. The
general principles upon the subject are well settled, and there need
be little or no doubt in respect to their application to any given
case, by a reference to the authorities cited, or rules extracted from
them, and here given.
CHAPTEE XXXII.
THE EENAITIBS OF TTSTIET, KHT> ACTIONS AT LAW AGAINST THE
HSUEBK —
THE ACTION AT LAW TO EBCOVBK BAOK USUEIOUS INTE-
EEST WHEN PEOPEETT DEPOSITED OE TEANSBEEEED UPON USU-
EIOUS CONTEAOTS MAT BE EECOVEEED.
The actual penalties of usury are given by statute, but an action

is given, under certain circumstances, to the borrower against the
party taking the illegal interest. The forfeitures created by statute
in eases of usury may be regarded as penalties, as they are always
penal in their results; but other actions are given, besides the
action for the forfeiture, in cases where the usury is actually paid.
A party who has paid excessive interest may, at common law,
recover the excess, in an action- for money had and received. The
law considers the borrower rather as a victim than an aggressor.
Statutes are passed prohibiting usury, in order to protect needy and
necessitous persons from the oppression of usurers, who are eager
to take advantage of the distresses of others,. and who violate the
422 IiAW OF VSURT.
law only to complete their ruin. At least, this is the theory on

which these enactments are made. In such case, therefore, the
maxim of potior est conditio def&ndentis — the defendant's con-
dition is the more preferable — has never been applied. This
doctrine is But the party injured by the exactions of
well settled.
the usurer cannot, at common law, recover any part of the prin-
cipal and interest and, to entitle him to maintain his action, he
;
must show that he has done all that equity requires (5 BacorCs
Ahr., Ut. Usv/ry, G). And it seems that when the statute gives
the remedy, without a negation of the common-law remedy by the
statute, either express or implied, the party aggrieved may resort
to his common-law remedy, instead of 'the remedy, given by the
statute, if he prefers to do so.
As before suggested, when a person seeks to recover back excess-

ive interest,he must pay the principal and legal interest before his
action can be sustained. That is to say, when he has paid the
excess merely, and any part of the principal and legal interest
remains unpaid, the action for the excess will not be entertained.
. But oftentimes this rule is changed by the statute. This, however,
will be referred to in another connection.
The statutes of New York authorize any person or his personal
representatives who shall, on any loan or forbearance of money,
have paid or delivered any greater sum than is allowed by law, to
recover from the person to whom the same was paid, or by whom
the same was received, the amount so paid, provided the action is
brought within one year after siich payment (1 R. S., 772, § 3 1 ;
Stat, at La/rge, 725, § 3). And if such suit is not brought within
the year, then the saidsum may be sued for and recovered with
costs atany time within three years after the said one year, by any
overseer of the poor of the town where such payment may have
been made, or by any county superintendent of the poor of the
county in which the payment may have been made (1 R. 8.,%^;
1 Stat, at Large, 726, § 4).
This statute does not take away the common-law remedy of the
borrower, but it has been held that such remedy is suspended dur-
ing the three years given to the overseer or county superintendent
of the poor to bring the action ; for both the common-law and sta-
tute remedies cannot be resorted to ( Vide Wheaton v. IliMard, 20

Johns. R., 290). And if the borrower fails to bring his action
within the first year, and the official person above named shall
THE ACTION FOB VSUBT. 423
prosecute under the statute within the three years specified, the
borrower's right to bring the action may be lost, because the
usurer is only liable to one action for the excessive interest taken.
But before the action shall be commenced by such ofiicial, the
borrower may bring his suit within the three years, and at any
time within the general limitations of action. His right to the
excessive interest is fixed by bringing suit, and such official cannot

afterward sue, though within the three years (Palmer v. Lord, 6
Johns. Ch.R.,^b).
The old Supreme Court of the State of New York, in the case
of Wheaton Hihlard, held that the statute of 1T87, which was
v.
substantially the same as the present statute of the State, giving

to the party paying usurious interest the right to sue for and
recover the excess within one yea/r after such payment, did not
take away the common-law remedy of the borrower to recover
such excess, as has been before suggested. But Justice Spencer,
delivering the opinion of the court, said :
" The injured party can-
not have both remedies, and
he neglect to pursue the statute
if
remedy for more than a year, his right of action at common law
would be suspended during the second year, for, peradventure, a
third person may prosecute."
The present Supreme Court of the State seems to have vibrated
somewhat upon this question. The court, at a General Term' held
in the seventh judicial district in 1863, decided that the provision
of the statute is cumulative, and does not take away the common-
law remedy of the borrower, and that he may bring his action to
recover the excess of interest paidby him at any time within six
years after the sum was paid {Porier v. Mount, 41 Pwrb. H., 561).
On the contrary, the Supreme Court, at a General Term held in
the first judicial district in 1866, decided that usurious interest
cannot be recovered back except under the statute, and that unless
the action to recover it back is brought within the time prescribed
by the statute, that is to say within one year from the time of pay-
ment, it cannot be sustained.
George G. Barnard, J., who delivered the opinion of the court,

said " I- do not understand that usurious interest may be recovered
:
back without this statute. TJsuiy is created by statutes. Penalties

are given and rights of action created by statute for violation of the
usury laws. The case of Wheaton v. Hibha/rd (20 Johns., 290)
was decided under a different statute from, the present one. One
424 ii4.w or usvBT.
portion of the opinion in it is questioned in 41 Barb., 561 ; the

first case holding that the plaintiffs right of action was suspended
after one year, for the next three years, when the overseers may
sue,and the latter case holding that the plaintiff may sue until the
overseers do sue. It seems to me quite plain that neither case can
be upheld under Meeoh v. Skmer (19 If. Y. Bep., 26). A right is

in that case hpid vested, becaase given by statute. '
If the right is
not asserted within the time, it is gone.' The may then

overseers
sue. They have a vested right, upon the same principle " {Palm
V. Johnson, 46 Barb. B., 21, 23, 24).
In the case of Porter v. Mount (41 Barb. R., 567), Justice
James C. Smith regards the remark of Jiidge Spencer, in TF)êato
V. Hihbard (20 Johns. B-, 290), as ohiter dictum, and he is inclined
to think is not wholly correct. He thinks the borrower's common-

law right of action is not c^salufely suspended during the three
years given to the public officexe by the statute ; but that he may
sue during that period, provided neither of such officers has pre-
viously sued for the same matter, and not otherwise. This is in
harmony with, the doctrine laid down by the chancellor in the
case of Palmer v. Zord, before referred to. But the two cases
in Barbour are entirely in conflict, one with the other, upon the
other' question, as to whether the statute supersedes the common-
law remedy of the borrower to recover back the usurious interest
paid and they are both General Term decisions, and each decided
;
by three judges, and each decision seems to be concurred in by the

fuU bench.
The ease of Meeoh v. Stover, in the New York Court of Appeals,
which Judge Barnard considers conclusive against the decision in
the 4ist of Barbour, arose under the statute against betting and
gaming; and Judge Comstock, wlio wrote the opinion in that
case, said: "If the statute had not given an action to recover
money lost at play, it is quite certain that on general principles
of law a suit for such a purpose could not be maintained."
This he holds, on account of the maxim recognised in such
cases, as " in pari delicto potior est conditio defendentis; " that is
to say, where both parties are equally in fault, the condition of the
defendant is the more preferable. The defendant ha.ving the
money won is permitted to keep it, because the law will not be
heard in the particular case. But it has been expressly held, and
it is believed never controverted, that this max;ina. d,QQS not apply
-
TEE ACTION FOR VSUST. 425

in a case of usury ; and it has frequently been held, and perhaps
never controverted, that the borrower has his remedy at common
law for usurious interest paid by him, without the aid of any
statute. The case of Butterworik v. O'Brien (23 N. Y. M.,
275), which Judge Barnard also thinks favors his position, simply
decides that the act of the legislature repealing the defense of
usury, as to banks, has the effect to deprive banks of the benefit
of the statute, and besides cannot maintain an
that, a corporation
action to recover back money paid by them in excess of legal

interest. In other words, it cannot be salid that there is any
usurious interest as to a corporation, and if this is so, a corporation
cannot most certainly sustain such an action. But these are the two
conflicting decisions of the Supreme Court of the State upon the
point, and consequently the question cannot be considered settled
until itshall be passed upon by the Court of Appeals.
Tlie Supreme Court of Alabama held that the act of 1819, of

that State, which prescribed the rate of interest and prohibited
the taking of usury, impliedly abrogated the common law, which
allowed the borrower to recover back, in indebitatus assumpsit,
all interest and that since
he had paid above the rate prescribed ;
the passage of the statute, he could only maintain a qui tarn action
in such case, and then the amount reserved by him was required
to be paid into the treasury for the use of the State {Carlisle v.
Gray, 10 Ala. E., 302).

The Supreme Court of Pennsylvania has held that a payment of
usurious interest was not such a voluntary payment as would
entitle the receiver to retain it; that in such case, the money is
paid under the constraint of a forced, though illegal contract,
obtained by oppression, and by taking advantage of the necessi-

ties of the borrower and that therefore the same may be recovered
;
back by action. And the court declared that, to enable the bor-
rower to recover back a sum paid for usurious interest, other evi-
dencerof duress or oppression is necessary than is involved in the
act itself of taking the money under a usurious contract {Philan-
thropic, etc.,Associatiem v. McKnight, 35 Penn R., 470). And
the Supreme Court of Texas laid down substantially the same
doctrine, in a case where the usurious interest was allowed as a
set-off, or appropriated to the reduction of the principal ( Ware v.
Bennett, 18 Texas R., 794) while the Supreme Court of Illinois

;
decided that usurious interest, once voluntarily paid^ cannot be

94
426 LAW OF USURY.
recovered back as money advanced or received. The ground upon

which the decision was based was, that the Illinois statute gives a
defense for usury, but not a cause of action ; and one of the judges
dissented from the decision {Hadden v. Irmes, 24 III. R.^ 381).
The Supreme Court of Wisconsin decided that the borrower may
recover the amount paid for usury in an action for money had and
received, after the lapse of the year within which he can recover
under the statute threefold that sum, and that he may also off-set
it in a suit brought for the recovery of the principal {Wood v.
Lake, 13 Wis. B., 84).

By the former statute of Massachusetts, a party paying usurious
interest was permitted to recover of the usurer threefold the
amount of interest p^d {Rmnsed Statutes, oh. 35, § 3). This is
different from the remedy at common law, and, of course, a party

who had paid a greater rate of interest than allowed by law, could
not recover back the threefold amount of interest paid, except in
the manner and form' prescribed by the statute ( Wiley v. Tale, 1

Met. E., 553).
The Supreme Judicial Court of Massachusetts decided that
neither the giving of a negotiable note in settlement of an account

which contained a charge for unlawful interest, nor the giving of
. a memorandum check in settlement of the note, was such a pay-
ment of unlawful interest as would enable the party giving the
note and check to recover back threefold the amount of interest
paid in an action on the statute of the State above referred to
{Stevens v. Idncohh, 1 Met. R., 525).

And it was held, under the IliTorth Carolina statute against usury,
that the penalty given
' by the statute could not be recovered,
unless the usurious interest or some portion of it had been actually
received, either in money or money's worth {Stedmam, v. Bland,
4 Ired. R., 296). But it was held that in the action to recover
such penalty, it was not necessary to prove that the principal
money had been paid {Seawell v. Shomherger, 2 Mwrph. 5., '200).
And the court held in another case, where payment of usurious
interest, or of a usurious contract, was made by the note of a
third person, that the usurious contract was complete before
the note became due. So that the statute penalty for usury could
be recovered {Cavam^ss v. Noy, 10 Ired. R., 315).
Under the Vermont statute it was decided that although the
payment of usury upon a note would, in law, be deemed a part
THE ACTION FOB USVBr. 427
payment of the note, if the note included both the money loaned
and the usury, whether at the time of negotiating the loan or after-
ward, and the usury, when paid, was applied upon such securities,
the debtor was at liberty to treat such a payment as having no con-
nection with the legal demand, and bring his action to recover it
back {Nicliols v. Bellows, 22 Yt. B., 581).

In tlie State of Greorgia itwas held that if a surety to a usurious
contract pays usurious interest, knowing it to be such, he cannot
recover it back from his principal {James v. Jeyner, 8 Ged. H.,
562).
Usurious interest was paid upon a note executed in Ohio, in
1846, payable in thirty days, and itit was paid
did not appear that
before September, 1850. The Ohio passed an act
legislature of
which took effect March 1, 1848, by which usurious interest might
be recovered back, or set off. In a suit brought in Indiana on the
note, the Supreme Court of the State held that the usury might
be set off . against the note, both at common law and under the
statute of Ohio {Smead v. Green, 5 Ind. R., 708).
Where a contract was made in Massachusetts, alleged to be usu-
rious by a which provided that a deduction
statute of that State,
of threefold the amount taken should be made from the sum found
due, an action was brought upon the contract in the State of New
Hampshire, and a plea of usury under the statute was interposed.
The court held that the statute, applying to the remedy merely,
could not be enforced in- New Hampshire; declaring, in general
terms, that statutes against usury, which apply only to the remedy,
can be enforced in those States only where the contract is made
{Watriss Y. Pierce, 32 N. H. R., 560).
In the State of Louisiana it was held that, under the statute of 1844
money paid for usurious interest could be reclaimed
of that State,
if suitwas brought within one year after the payment {Keane v.
Bromdon, 12 La. An. R., 20). And the same court held that
where usurious interest was stipulated before the passage of the act
of the 20th March, 1856, " relative to the rate of interest," but
paid since the promulgation of that act, the whole of the interest
paid could be recovered back under the second section of the act of
February 19, 1844; that the contract relative to interest was void
at the time was entered into, and that it remained unaffected by
it
the subsequent law in existence when the pavment was made (Mer-
mlle v. Le Blame, 12 La. An. R., 221).
428 I'Aw OF usasr.
The Supreme Court of Ohio has decided that where usurious

interest has been paid, the borrower may waive the forfeiture', and
require such excess to be applied to the payment of the legal
interest {Zookwood v. Mitchell, 7 Ohio J!f. S. R., 387).
Under the Massachusetts statute before referred to, the Supreme
Judicial Court of that State held that one who, in consideration of
a loan of money, gaye his note for a larger amount, bearing inte-
restand secured by a mortgage on real estate, and afterward con

veyed the real estate to one who agreed, as part of the considera-
tion of the conveyance, to pay the amount of the note, might,
upon the grantee's paying the note accordingly, maintain an action
on the statute against the payee of the note, to recover three times
the excess of the amount of the note above the loan {Ounnvnghami
V. Hall, 1 Gray's H., 559). But the same learned court held that
•the giving of a negotiable note for $1,000 and interest, with col-
lateral security, for a loan of $900, and the payment of interest

thereon at the legal rate annually on the $1,000 for two years and
a half, and of part of the principal, were not such a payment of
unlawful interest as would enable the party to maintain ah action
to recover back threefold the amount of unlawful interest paid.
Bigelow, J., delivered the opinion of the court, and said " This :
case clearly comes within the principle laid down in Stevens v. Lm-
coln (7 Met., 525). The locus jpoemtembioe still remains open to the
defendants. They may hereafter reKnquish their claim to the
unlawful interest, and surrender the note and mortgage which they
received from the plaintiffs, without receiving anything more than
the original sum of $900 which they actually advanced to the plain-
tiffs, with lawful interest thereon. In that event, no usury will

have been received by them. The payments already made by the
plaintiffs have been appropriated by the parties in payment of the
lawful debt, and not in satisfaction of the claim of usurious inte-

rest. If there had been no appropriation of those payments, the
law would apply them in payment of the lawful rather than of
the illegal demand " {Saunders v. Lambert, 7 Grwy's R., 484, 486).
In the Court of Appeals of the State of Kentucky, a case was
decided, in which usury in the debt sought to be collected was known
to the p'arty before the judgment by ordinary proceedings was ren-
dered against him, and was then available as a defense either at law
or in equity he failed to rely upon it, however, but sought an
;
injunction or modification of the judgment to the extent of the

;
TBE ACTION FOR USVRT. 429

nsury. The court teld that he was not entitled to the relief sought
but decided, nevertheless, that if he had paid the usury he might
sue for and recover the amount from the party receiving it {Chinn
V. MiteheU, 2 Met. B., 92).
In the State of Michigan the Supreme Court has decided that
the statute concerning usury, in force in that State, does not con-
template the recovery back or allowance of unlawful interest once
paid, unless in a snit upon the contract under which it was exacted
that the statute does not absolutely avoid contracts for usury, and
that if parties perform them they are remediless {Smith v. Slod-
dmrd, 10 Mich. JR., 148). The same is decided to be the law in
the State of Iowa. Usurious interest once paid in that State can-
not be recovered back {Smith v. Coopers, 9 Iowa R., 376 ; Nichols
V. Skeel, 12 ib., 300). And the law is held to be the same in Illi-
nois {Tompkins v. Sill, 28 III. M., 519 ; Mcmney v. Stockton, 34

ik., 306).
It has been held by the Supreme Court of the State of Illinois
that a mortgagor cannot maintain an action to recover usurious
interest collected by the sale of the property under a power of sale
in the mortgage. That the payment was involuntary, was held not
to help the mortgagor {Perkins v. Conant, 29 III. R., 184).
In the State of Yermont, in an action to recover back money
paid as usury, it appeared that the defendant agreed to obtain a
loan of money and did obtain it of, H. at a usurious
for plaintiff,
rate of interest,,and that he received seventy-five dollars from the
lender as a part of the transaction. Subsequently he purchased
the plaintiff's note of H. and the plaintiff paid him the principal
and usurious interest. H. admitted that he received one-half of
the extra interest included in the note, and settled with the plaintiff
therefor. The court held that the defendant was a party to the
usurious contract, so as to be liable to repay the usury he had
received. It was declared that the plaintiff's cause of action
accrued when the defendant receive4 the seventy-five dollars from
H. ( Williams v. Wilder, 37 Vt. R., 613).
The Supreme Judicial Court of Massachusetts decided that a
usurious lender does not subject himself to the statute penalties
for usury if h,e actually receives no more than the sum lent, with
lawful interest. But upon a bill in equity to redeem a mortgage
made to secure a usurious contract, the court held that if the
defendantby his answer claims the perfarmanca of such contract,
.
430 I'^W OF VSURY.
.the mortgagor is entitled to a deduction of the forfeiture for usury

from the amount due from him upon the contract {Smith v. Rol-
inson, 10 Allen's R., 130).
The Supreme Court of Missouri has decided that if a party
•ooluntiwily pays interest as usury, an action cannot be maintained

for its repayment {Romsom v. Hays, 39 Mo. R., 445).
The Supreme Court of the State of "Wisconsin has held that

under a statute which provides that no interest shall be recovered
upon usurious contracts where money has been paid as interest at
an illegal rate, only the excess above the legal rate can be recovered
in a commonjaw action for money had and received, or set-ofE by
the borrower in an action for the principal, nor will equity enforce
the forfeiture except for such excess (-f(3sy v. Zovejoy, 20 Wis. E.,
403).
It was held no creditor or surety has made
in Tennessee that •
out a title to recover the usury he has paid, until he has esta-
blished his demand by judgment at law or decree in equity. And
usury under section
that, until this is done, his bill or suit for the
1955 of the Code of the State, providing for the recovery of usu-
rious interest paid, is- wholly unwarranted {Battle v. Shute, 3 Read's
R., 547).
It has been decided in the State of Georgia that the right of a
debtor to, recover back usurious interest paid by him is a personal
privilege, and not a right which a surety of such debtor has a
right to set up by way of set-off to the debt on which he is liable
as surety {Mordecai v. Stewart, 37 Ga. R., 364).
But the remedy of the borrower who pays usurious interest is
not always confined to his action for the recovery of the excess in
money. For example, when, in a usurious contract the delivery of

personal property by the borrower to the lender is a part of the
transaction, it seems to be settled that the possession of such pro-
perty by the lender is regarded as tortious from the beginning, and
that trover will immediately lie against him at the suit of the bor-
rower without a demand or other evidence of a further act of

conversion. In accordance with this doctrine the old Supreme
Court of the State of New York held, where it appeared that the
defendant lent money to the plaintiff, and to secure usurious inte-
rest sold to him same time certain real estate at an exorbitant
at the
price, and for a part of the amount to be paid received from the
borrower, at the time of the loan, an assignment and delivery ol
TBE ACTION FOR UBURT. 481
several bonds and mortgages, that the act of receiving the bonds
and mortgages was a conversion by the defendant, and that trover
by the borrower, brought after six years from such delivery, was
barred by the statute of limitations; and the doctrine was laid
down that the law regards everything done by a borrower to obtain
money upon usurious terms as involuntary, and the result of con-
straint and compulsion.
Beardsley, Ch. J., in his opinion, said " The contract upon
:
which these securities were received by the defendant, being usu-

rious, was wholly void, and he thereby acquired no right to them
(1 B. S., 772, § 5). Nor was his possession, although by manual

delivery from the plaintiff, a rightful possession. On the contrary,
it was not only acquired in violation of positive law, but, as respects
the plaintiff, was compulsory and o»ppressive. The law regards
whatever is done to obtain money on usurious terms, not as a vol-
untary act, but as the direct result of constraint and violence on
the part of the usurer. The borrower on such terms is the slave
of the lender ; nay, more, a slave in chains, and utterly incapable
of resistance. As to the usurer, anything is held to be oppressive
and tyrannical to which an unresisting and passive submission is
yielded by his victim. It is on this principle alone that the law

gives redress to one who submits to usurious exactions. He is not
looked upon as a free agent, nor as a violator of the law. And to
such a case the maxims volenU nonfit injuria, and in pari delicto
potior est oondiMo defendentis have no application " (Sohroeppel
Y. Corning, 5 Denio's JR., 236, 240, 241).
This doctrine is well sustained by the English courts. In an
action brought in the English Common Pleas to recover in trover
for goods deposited to secure a usurious loan, the rule was clearly
upheld. The report of the case does not show that any demand
had been niade, nor was the objection taken on the trial. The
only point left to the jury was whether the goods had been
deposited on a contract to pay more than the legal rate of interest
for money advanced. The jury found that such was the fact, and
the plaintiff" had a verdict {Tregoning v. Att§nborough, 7 £ing.
R., 97). And a subsequent case of the same character in the
King's Bench was disposed of in the same way, no objection being
taken that a demand of the property had not been ina,de {Hârgreaves
V. Hutchinson, 2 Adolph. d; Ems' H., 12). In both these cases
the entire value of the goods sold was recovered in trover from the
'
432 LAV OF USUBT.
lender, without any deduction on account of the sum actually loaned

and legal interest.
And the same principles were decided in an early case in the
present Supreme Court of the State of New York. It appeared
that bonds and mortgages against third persons were transferred
and delivered to the lender by the borrower, in payment and satis-
faction of a usurious debt, or in execution and discharge of a usuri-
ous contract and the court held that no action could be maintained
;
by the borrower to recover the excess of usury alleged to have been

paid by him, unless the same was brought within one year after
such transfer of securities was made. And it was farther held
that the right of 'action in the borrower, under the statute, for the
excess of money or property paid by him beyond the sum actually
due, is perfect upon the receipt by the lender of bonds and mort-
gages transferred to him iu payment of the debt, and the appro-
priation thereof to his own use ; that the borrower need not wait
until the money has been actually received by the lender upon
such securities before commencing an action.
Allen, J., in his opinion, among other things, said " The statute
:
regulating the interest of money (1 R. S., T72, § 3) does n6t restrict

the cases in which a party is entitled -to receive the excess paid
beyond the legal interest to those in which money, or that which
has been taken and received as money, has been paid ; bat embraces
every case where a party has paid or delivered any greater sum or
value than is allowed by law to be taken. The form of the action,

it is true, may depend upon the medium in which satisfaction lias
been made. If money has been paid, Uie action for money paid
and received will lie. If property has been delivered, then the
vendor's action to recover that property or its value must be resorted
tij, and in either case the declaration must be under the statute
{Sohroeppel v. Corning, 10 Barb. B., 576, 580).

This last case was taken to the Court of Appeals of the State,
where the judgment of the Supreme Court was affirmed on the
ground that more than six years had elapsed since the bonds and
mortgages were transferred, and therefore the statute of limita-
tions was a perfect defense to the action. And .the following rules
were laid down by a majority of the court "Where a borrower, :
on obtaining a loan of money at an illegal rate of interest, assigns

to the lender bonds and mortgages in consideration of such loan,
the aesignment is void, and trover may be immediately maintained
:
TSE ACTION FOR USURY. 438
for them, by the mortgagor. The statute of limitations is a bar to

such action after six years from the time of such assignment. The
same statute is a bar to. an action of assumpsit commenced against
the lender more than six years after the assignment of the bonds
and mortgages to him, to recover moneys received by him thereon
within six years prior to the commencement of the action.
Judges Paige and Foot dissented from this view, and held that
the receipt of the money upon the mortgages created a new cause
of action, which was not barred until six years from the time of
its receipt and Judge Paige was of the opinion that, the assign-
;
ment of the bonds and mortgages being void, the assignor had a
right to treat the assignee as holding them in trust for him, and to
claim their proceeds as money paid to his use, and that the assignee
could not in answer to such claim set up his own tortious act to
prevent a recovery.
Judge Paige also expressed the opinion that the remedy given
by statute for the recovery of usurious interest paid to the lender
is merely cumulative ; that the statute, in providing this remedy,
does not take away the common-law remedy of assumpsit for
money paid and received. And to be in
this position would seem
harmony with the principle which governed the majority of the
court in the disposition of the case {Soh/roeppd Y.Oorning, 6 N. Y.
R., 107).
The old Supreme Court of the State of !N"ew York held, in am
early case, that where goods fraudulently obtained are deposited
with an auctioneer, who makes an advance upon them, and charges
five per cent besides the usual commissions, the transaction is usuri-
ous, and for that cause the auctioneer is not entitled to be con-
sidered a honfijide purchaser, in an action of trover brought against
him by the party from whom the goods were obtained, although,
he is wholly innocent of the fraud,' (EomsdeU v. Morgan, 16 Wend.
R., 574). And in a later case the same learned court held that
where notes are delivered on collateral security for the payment of
another note upon a usurious agreement, the party depositing the
notes may repudiate the agreement under which they were deliv-
ered, and bring an action of replevin for their recovery ; but that
there must be a dema/nd before suit.
Nelson, Oh. J., delivered the opinion of the court, and said
" I entertain no doubt that a demand was necessary to enable the
plaintiff to sustain the suit. The possession of the notes by the
55
434 LAvr or jtsurt.
defendant was not unlawful or tortious because they were delivered

by the As it was lawful for him to deliver the
plaintiff himself.
notes, it was so for the defendant to receive them. True,
surely
the agreement under which they were delivered was not binding,
and hencte the plaintiff had a right to repudiate it but this did ;
not render the acts done under the agreement tortious" {Boughton
V. £ruce, 20 Wend. B., 234, 235).
The remarks of the chief justice in this case would seem to
countenance the idea that where property has been transferred, to

secure a usurious contract, an action will not lie to recover the
property until demand and refusal to restore the property, or
something amounting to an actual conversion had taken place.
But the action of Boughton v. Bruce was an action of replevin

in the deUnet, and there may be a distinction between such an
action and an action of trover; at all events it is plain, upon
authority, that the remarks made in the case cannot be taken as
controlling in an action of trover. And especially must this be
the rule under the New York statute, which provides that " all
deposits of goods or other things whatsoever, upon a usurious

consideration, shall be void" (1 B. S., 772, § 5 ; 1 Stat at Lwrg&,
726). The Supreme Court of the United States have decided
that where a party distrained property for unpaid rent, under a
usurious instrument or lease, tke tenant may maintain replevin for

the property distrained.
Mr. Justice McLean, in delivering the opinion of the court,
said :
" If usury may be shown in the inception of a bill, to defeat
a recovery by an indorsee, who paid for it a valuable considera-

tion without notice of the usury, may not the same defense be
set up where, in a case like the present, the party to the usurious
contract claims by virtue of its provisions a summary mode of
redress. The court entertain no doubt on this subject" {^Lloydy.

Soott, 4 Peter^ B., 205, 230).
SQITITABLE BELIEF FOB VSVBT. 435
CHAPTEK XXXIII.
BELIEF m EQUITT or CASES OF U8TIET ^

WHEN THE PEOOBEDINGS
MAT BE MAINTAINED —
GENEEAi EULES UPON THE SUBJECT.
In addition to the remedies wliich the borrower has against the

lender, at law, on account of usurious interest and usurious trans-
actions, the common law, and in general the statutes enacted

against usury, give the party relief against usury in a court of
equity, There are certain rules, however, which prevail in such
cases in a court of equity which do not, as a general thing, apply
to a proceeding at law. Unless a statute exists to the contrary, the
principles upon which a party to a usurious contract can, in a
court of equity, obtain relief against the usurious premium are
well settled. The. invariable rule jn equity is, that a bill or other
proceeding in equity to set aside or affept a usurious contract,
whether filed for relief or discovery, or for both, cannot be main-
tained without paying or offering to pay the amount actually
loaned. Neither discovery nor relief can in any case be obtained
in the Court of Chancery, or by proceedings in equity, without a
•
repayment of the sum actually lent, with lawful interest, because
the borrower cannot, in any case, sor under any circumstances, be
equitably entitled to keep the money which he has actually received
from the lender, and for which the lender has received no con-
sideration. As a general rule, therefore, the borrower ig met by
that cardinal maxim of a court of equity, " that he who asks for
equity must do equity," and can obtain no aid from that jurisdic-
tion in getting ridof or recovering back the amount which has
been improperly exacted from him, until he repays the amount
which in justice and equity is due froni him to the lender. Relief
under such circumstances, where the complainant does not ask for or
need a discovery, is refused exclusively upon this principle but ;
where he has no legal evidence of the usury, and the object of

his bill is to compel the defendant to disclose or admit the fact^
he has an additional diflSculty to encounter, to wit, that a court

of equity will not compel a defendant to answer upon oath, and
thus become a witness for his adversary and against himself, when
such answer may subject him to a criminal proceeding, or to a
penalty or forfeiture, or to any loss in the nature of a forfeiture!.
;
4®6 JÂW OF USUBT.
In sucli a case, therefore, he is bound to waive the forfeiture, and

pay the amount actually loaned, not only because
it is just and
equitable, but in order to guard against the possibility of the

defendant's answer being made the means, of subjecting him to a
forfeiture.
The borrower may have relief in a court of equity against the
usurious premium, and may
compel the defendant to disclose
also
the transaction upon oath, in order to prove the usurious contract
but, as a general rule, the relief is granted only upon the princi-
ples stated. This is the general rule, although it is sometimes
waived by express provision of statute. For example, by the
statute of the State of New York' it is provided that, whenever
any borrower of any money, goods or things in action shall file a
chancery for a discovery of the money, goods or things in
bill in
action, taken or received in violation of the statute, against usury,

it shall not be necessary for him to pay, or offer to pay, any interest
whatever on the sum or thing borrowed ; nor shall any court of
equity require or compel the payment or deposit of the principal
sum, or any part thereof, as a condition of granting relief to the
borrower, in any case of a usurious loan forbidden by the statute
(1 B. 8., ITi, § 8 ; 1 Stat, at Za/rge, 7m).

As th6 law stood in New York before the revision of the statutes,
every usurious contrtot, and every instrument, of whatever kind
or description, taken as the evidence of such contract, were abso-
lutely void ; and when sued upon such contract, all the borrower
had to do was to prove such usury, and no recovery could be had
against him ; he defeated the recovery, not only of the usurious
excess, but of the sum actually loaned. If he had Itegal and suffi-
cient evidencfe of the usury, his defense was perfect at law, and he
had no occasion to invoke the aid of a court of equity. If the
knowledge of the usury was confined to himself and the lender,
then it became necessary for him to go into a court of equity, and
by a bill of discovery to call upon the lender to adinit or deny the
usury. He was then obliged to Waive the forfeiture, by paying, oi"
offering to pay, the sum actually loaned, with interest. And in
some where the form of the security was such as to enable

cases,
the lender to collect it without a suit, either at law or in equity

(as a bond and warrant of attorney, or a mortgage), the borrower,
although he had competent evidence of the usury, still, as he had
no opportunity, froni the form of the procefeding, to avail himself
EQUITABLE BELIEF FOR USUBT. 437
of it at law, was compelled to file his bill, and ask relief in equity.
In such a case, also, although he sought and required no discovery,
a court of equity would not relieve him from the usurious excess,
except upon the equitable condition of his repaying the sum actu-
ally loaned. This was the rule, not by reason of any express statu-
tory provision, but according to the established principles upon
which a court of eqidty always exercised its jurisdiction in grant-
ing relief. The Court of Chancery invariably exacted of the party
who asked relief against a usurious transaction that he pay, or offer
to pay, both principal and interest, as a condition precedent to the

compelling of the defendant to answer and make discovery. A
which did not contain such offer was bad upon its face, and
bill
might be demurred to. The power and authority of a court of

equity to impose those terms, as the condition of compelling dis-
covery, are not conferred by any statutory enactment. Such
authority belongs to the court by virtue of its general equity juris-
diction ; and unless a statute exists providing that the party may
have relief without the imposition of those terms, the rule will be
invariably enforced.
To guard against the possibility of the defendant's answer in a
case of usury being made the means of subjecting him to a forfeit-
ure or other punishment, the New York Revised Statutes provide
that every person who shall discover and return the money, goods
or other thing, taken, accepted or received, or the value thereof,
contrary to the usury laws, shall be acquitted and discharged from
any other or further forfeiture, penalty or punishment which he
may have incurred by taking or receiving the money or thing so
discovered and repaid or returned (1 B. S., 772, §4; 1 Stat, at
Za/rge, 726). And, as the law was amended by the act of 1887,
it is further provided that the testimony given by any plaintiff, or
the answer of any defendant, made pursuant to the statute, shall

not be used against such person before any grand jury, or on the
trial of any indictment against such person (La/ms of 1837, cha/p.
430, §8; ^Stat. at La/rge, 460). It will be observed that this

exemption applies only to the party to the suit ; and it has been
held that where a person is called as a witness to prove the usury,
aot a party on the record, if his testimony may be used against him
in a criminal prosecution, he cannot be compelled to testify in
respect to the usury, until it is shown that he is a party in inte-
rest (The Bamk of Salvia v. Eenry, 2 Denials E., 155).
438 ijAW OF USURT.
The statute of New York, however, provides a relief for the

" horrower" and considerable discussion has been had as to who
are iorrowers, within the meaning of the statute. But the late
Court of Errors of the State settled the doctrine that the term
embraces not only the party to whom the original loan was made,
but also his sureties, heirs, devisees and personal representatives.
The court held, however, that a subsequent grantee of premises
covered by a usurious mortgage is not a "borrower," and therefore
cannot maintain a.suit in equity to set aside the mortgage, without
paying or offering to pay the sum actually loaned.
Lott, Senator, in his opinion, said " The term iorrower has
: ?,
well-known and definite meaning. It is used in contradistinction

to lender, and is intended to designate one of the parties to a con-
tract for a loan, and may be extended to those standing in his place
in a representative capacity, as heirs-at-law, executors or adminis-
trators ; but I think it is a forced construction to treat him as a
iorrower who is entirely disconnected with the loan, and not bound
in any way to pay the sum borrowed."
Wright, Senator, closes his opinion in these words: "The
result at which I have arrived is, that a grantee of land covered by
a usurious mortgage is not a '
borrower within the fourth
' section
of the act to prevent usury, passed in May, 1837. I think the

vice-chancellor of the fifth circuit properly allowed the demurrer
to the complainant's bill, for want of an allegation or offer of pay-
ment of the money actually due upon the mortgage of Post, and
that the decree of the chancellor should therefore be reversed"
{Post V. The President, etc., of the BamJc of Utica, 1 HilVs -ff.,
391, 397, 408).

It was conceded on all sides, in the case in the 7th of Hill, that,
according to the law of the Court of Chancery, as it was adminis-
tered in England and in the State of JSTew York previous to the
adoption of the Revised Statutes, the usurer was made secure in
the amount of money he actually lent, even in a case where a bill
was filed to set aside a security taken for the loan, though the sta-
tute laws of both countries had declared expressly that not only
the security but the contract for the loan was absolutely void.
The complainant was required to pay or offer to pay the sum lent
before he could entitle himself to relief or discovery on the ground
of usury. This disregard of the plain provisions of the statute was
always Justified upon the strength of a maxim in that court that
EQUITABLE BELIEF FOB UStTBT. 439
"he who asks for equity must do.equity," and hence the court
would neither allow a discovery nor grant a relief without a repay-
ment of the sum actually lent, with lawful interest. Such is
belfeved to have been the invariable rule, and such is believed to
be the rule at the present time, in the absence of statutory pro-
vision to the contrary.
That a purchaser from a borrower is not included in the term
borrower within the provision of the act of 1837 of the State of
New York, before referred to, has been repeatedly decided by the
Court of Appeals of the State. A party occupying that position,
therefore, is not entitled to relief as a borrower within the mean-
ing of that provision. Hence, according to the settled princi-
ples of equity, he must " do equity " before the court will interfere
in his behalf to relieve him from a usurious transaction, to which
his grantorwas the suffering party ( Vide Hexford v. Widger, 2 iV.
Y. B., 131 ScJiermerhorn v. Tahncm, 14 ib., 93
; Bullard v. ;
Rayrbor, 30 i5., 131 Chamberlain v. Dempsey, 36 ih., 144^ 149).

;
The law is well settled that in all eases where a party has not
the power to avail himself of the defense of usury at law, he may
have relief in a court of equity against the usurious transaction,
and he may also take measures in a court of equity to make the
lender discover the usury upon his own oath. But in all these
cases, where there is no statute to the contrary, the general rule of
courts of equity "that he who asks for equity must do equity"
applies, and to entitle the borrower to relief he must pay or offer
to pay the money actually borrowed. The party in such a case
is in the same condition any other person who seeks the aid of
as
a court of equity to enable him to discover the means of a defeat to
a suit at law, and is subject to the general rules that regulate a
court of equity in granting relief. It has been truly suggested
that the effect of this rule is, that a party making a secret usurious
contract has little or nothing to fear ; the absence of proof makes
him safe at law. And if the debtor resorts to equity, the most he
can lose is the usurious excess reserved in the security. And to
compensate him for this loss, he is sure to receive back the money
and the legal interest more promptly than he other-
actually lent
wise could collect it. Eeasons of this nature, doubtless, have
induced the legislatures of some of the States to provide by
express statute, that parties seeking relief against usurious transac-
tions shall not be subject to the ordinary maxims of courts of
440 LAW OF USUBT,
«qidty, which require the payment or tender of the money bor-

rowed as a condition of obtaining relief by proceedings in an equity
prisdietion. But without some statutory provision waiving the
conditions, the ordinary rule will be enforced, even though statutes
may exist allowing parties to testify in their own behalf, or to call
their antagonists to give evidence in the case.

Another rule in equity may be stated, which is applicable to a
case for relief from usury, as well as others of which a court of
equity will take cognizance ; and that is, that after a verdict at law
a party comes too late with a bill of discovery, unless it is a clear
case of accident, surprise or fraud. Said Lord Chancellor Eldon,
in an important and well-considered case before the English Court
of Chancery :
" If a defendant has a good legal defense, but the
matter has not been tried at law, it becomes a serious question
whether a party, who, being competent, does not choose to defend

himself at law, can come into equity and change the juris-
diction. Consider the effect ; he might not have succeeded at law,
but by coming into equity he secures so much additional time.

* * * Lord Thurlow was very tenacious of the doctrine, that a
party who had an opportunity of a trial at law, and would not
avail himself of it, could not come here " {Prothew v. Furman, 2
Swanston's S., 227). Such now is the established doctrine in
England, and has been for a longer time the general doctrine
in the American States. And the doctrine, as applied to a ease
for relief from usury, is, that a defendant sued at law on a contract
alleged to be usurious will not be entitled to a bill of discovery if
he suffers a nonsuit and jud^nent to be taken against him, and

especially when he does so without making a defense at law ; and
it has been held, accordingly, that an injunction will not be granted
against a judgment where a party seeks a discovery of usury and
claims a return of the excess beyond the legal interest. The reason
of the rule is, that the proof of usury is a good defense at law and ;
when it is knowledge of the defendant, no^ satisfactory rea-

in the
son can be given why the discovery was not sought while the suit
was pending. Whenever a party making a discovery had know-
ledge of the facts during the pendency of a suit at law, equity will
not permit him to do so afterward to enjoin a judgment. This doc-
trine is well settled by adjudications in both the State and federal
courts, and is uniformly adhered to in cases of alleged usury, as
EQUITABLE BELIEF FOB USUBT. 441
ivell as in all others of an equitable nature, where the matter at

issue may be made available in a court of law.
Where the plaintiff was held at law on notes alleged by him to
be usurious, and suffered a verdict and judgment to be taken
against him without making any defense or applying to the Court
of Chancery on a bill of discovery in due season, the late Court of
Chancery of the State of New York held that he was concluded,
and not entitled to relief {Thompson v. Berry, 3 Johns. Ch. R.,
396). And the same court held, in a subsequent case, that after
payment of a judgment recovered against him in a litigated suit
at law, the defendant cannot recover the money in equity upon
the ground of usury. was declared that he should interpose
It
that defense at law, and, if necessary, file a bill for discovery and ;
if the plaintiff is beyond the jurisdiction of the court of law,
so that he cannot be examined as a witness under the act of 1837,

the defendant may have an injunction staying proceedings until
full v. Yam, 9 Pcdge^s E., 165).
answer {Bartholomew But it
was subsequently held by the same learned court that where the
borrower can establish the defense of usury by a competent wit-
ness, without a discovery from the real plaintiff, but is so situated
that he cannot avail himself of the testiniony of the witness in
the suit at law, he may resort to Chancery for relief. Where the
principal debtor, being discharged under the bankrupt law, in a
suit brought against him and his surety, plead his discharge, and
issue was taken thereupon by the plaintiff", the court held that the
surety could file his bill to set aside the security in suit, and
call the principal as a witness {Morse v. Hovey, 1 Barl. Oh. E.,
404).
The Court of Appeals of the State of Kentucky have held that
where usury in the debt sought to be collected was known to the
party before the judgment by ordinary proceedings was recorded
against him, and was then available as a defense either at law or
in equity, and such party fails to rely upon such defense, he is not
entitled to relief by injunction against the judgment to the extent
of the usury, nor to a modification of the judgment to that extent
in a court of equity {Ohinn v. Mitchell, 2 Met. E., 92).
The same doctrine was recognized in an early case before the
Court of Appeals of the State of New York. The complainants
were sureties for C. upon a note given to J. for a usurious loan of
money. An action at law was brought upon the note against the
66
442 iîr OF VSURT.
complainant, and C, in the name of P., an indorsee. The complain-

ants pleaded the general issue and gave notice of the defense of
usury, but did not verify the notice as required by the usury act
of 1837, so as to entitle them to examine the plaintiff as a witness.

On the trial they called as a witness J., the payee of the note, who
stated on his voire dA/re owner of the note and the
that he was the
and objected to testifying in the cause, and
plaintiff in interest,
his objection was sustained by the court. A verdict was taken for
the amount equitably due on the note, and judgment was perfected
against the complainant and C. The court held that a bill filed
by the complainants, after judgment at lorn, for the purpose of
obtaining the testimony of C, and the ruling against the judg-
ment, on the ground of usury, dould not be sustained.
And the court held further, that after judgment at law the hill
could- not be sustained on the ground that the complainants, as
sureties, were discharged by reason of the holder of the note
having extended the time of payment to the principal debtor, in
consideration of a usurious premium paid by him in advance, it
not being shown that the complainants were prevented from setting
up this defense in the action at law by any fraud or accident, or
by the act of the opposite party ( Yilas v. Jones, 1 N. Y. B., 274).
The doctrine in respect to the jurisdiction of courts of equity, in
cases of usury, underwent examination several years since in the
Court of Appeals of the State of New York, and the following
points were affirmed Usury does not, of itself, constitute a ground
:
of jurisdiction in a court of equity, and the act of the legislature

of the State, passed in 1S37 to prevent usury, does not enlarge the
powers of courts of equity in this respect. Where an action at
law was commenced to recover upon a contract alleged to be usu-
rious, and the defendant in the action filed a bill in chancery pray-
ing for an injunction to restrain the proceedings, but alleging no
defect in the means of establishing his defense at law, the court
,held that the bill could not be sustained.
Harris, J., delivered the opinion of the court, and said : "The
most general description of a court of equity is, that it is a court
having jurisdiction in cases where a plain, adequate and complete
remedy cannot be had, at law. There are exceptions and limita-
tions to this general proposition, but none, I think, which can give
such a court jurisdiction of this case. The plaintiff filed his bill
to arrest a trial at law, and transfer the litigation to the, Court of

EQUITABLE BELIEF FOB USUET. 443
Chancery. He asks for no discovery, and alleges no defect in the

means of establishing his defense at law. The defendants, in
their answer, object to the jurisdiction of the court on the ground
that the remedy at law is perfect. The objection was in timey and
unless there is something in the grounds upon which the plaintift
has sought the interposition of a court of equity, which gives it
concurrent jurisdiction with a court of law, the objection must

prevaiL
"Assuming that the transactions between the parties are cor-
rectly stated by the plaintiff, and that they make out a case of
usury, yet before he can transfer the litigation from the court of
law in which it had been commenced to a court of equity, it must
appear that he will be deprived of some legal or equitable right if
the action at law is suffered to proceed. The mere allegation of
usury has never been regarded as a ground of equity jurisdiction.
No instance can be found in which a court of equity has inter-
fered upon that ground alone.
" It seems to have been supposed by the plaintiff's counsel that
the statute of 1837 {Sess. £., 1837, j). 486, §§4, 5) enlarged the
jurisdiction of the Court of Chancery so as to embrace such a case.
But such has never been the construction of that statute. * * *
The object of the act of 1837, undoubtedly, was to enable a bor-
rower, where for any reason he found himself unable to make his
defense at law, and was thereupon obliged to resort to a court of
equity for discovery or relief, to do so without the former pre-
requsite of paying or tendering the sum aetu'ally borrowed. The
act did not enlarge the class of cases in which a bill in chancery
might be filed, but merely changed the terms upon which the
borrower might obtain relief in that court. * * * There is
nothing in the act which indicates an intention to extend the
jurisdiction of the Court of Chancery beyond the cases which were
{Minturn v. The Fa/rm&r^ Loan
before cognizable in that court "
and Trust Company, 3 J!^. T. B., 498, 500).
The late Court of Chancery of the State had previously held
that the Court of Chancery was not compelled by the act of 1837
to take jurisdiction of every case of usury, and decided that it
would not entertain jurisdiction where both discovery and relief
could be had at law ; as where the security was a note negotiable,
and the payee was within the jurisdiction of the court of law, so
that he could be called as a witness under the act {Perri/ne v. Stry-
444 L-^w OF nsuBT.
her, 7 Paige^s R., 698). And in a later case the same court hel^
that the act of 1837 did not confer upon the Court of Chancery
concurrent jurisdiction with courts of law in all cases of usury
but merely gave that court power to exercise its jnrisdictioji in
those cases where necessary to aid the defense of usury, or to

it is
remove usurious securities which are a cloud upon the complainant's

title to real property, or which may be used at law to his iirjury,
or in such manner that he cannot interpose a legal defense to them

in a court of law {Morse v. Sbvey, 9 Faigeâ M,, 197).
But in a still later case, thesame court held that where a mort-
gage is usurious, and a cloud upon the title of the mortgagor, he
has a right under the act of 1837 to come into the Court of
Chancery for the purpose of having it canceled ; although it was
decided that he was not entitled to an injunction to prevent the
mortgagee from trying the question of usury at law, unless a dis-
covery was necessary, or some other obstacle existed to making

the defense at law {Hartshorn v. Damenport, 2 Barb. Gh. R., 77).
The same court, in a case betbre the vice-chancellor of the first
circuit of the State of New Tork, decided that though usury may
be proven law and a legal suit is pending for the loan, the court
at
will take jurisdiction where the borrower seeks not only to have
the contract declared null and the suit enjoined, but also the sur-
render to him of valid collateral securities {Peters v. Mortkne/r,
4 Edw. Gh. R., 279). Eeverting again to the familiar doctrine in
courts of equityj that " he who seeks equity must do equity,"
reference may be made to a late case involving that question,
decided by the New Tork Court of Appeals, in which it was
determined that where a contract or obligation is given for two
or more separate and independent things having no connection
with each other, and one of those objects is the security of a
usurious debt, although the contract is void altogether, under the
New York statute against usury, and no action at law or in equity
could be maintained thereon, nevertheless, if the party comes into

a court of equity to ask that such contract be surrendered, all
the statutes of usury have done affecting the complainant's right
any payment on account of such usuri-

to relief is to forbid that
ous debt shall be made a condition of relief. It was further held
and declared that, where a mortgage has been given upon lands in
Ohio to secure the payment of several promissory notes, a part of
wMch notes are usurious, and a part of which are lorm fide-
:
EQUITABLE BELIEF EOH VSURT. 445
although, the mortgage is void, a court of equity will require the

complainant to do equity by paying or tendering payment of the
valid notes covered by the mortgage, before it will entertain a suit
to cause the mortgage to be delivered up to be canceled, as a cloud

upon title. This is substantially the syllabus, or points decided
by the ease ; but the importance of the question discussed in the
able opinion of the court seems to justify some liberal extracts
from the opinion.
WoodrufE, J., who delivered the opinion of the court, said
" Billsby borrowers to remove usurious securities, which are a
cloud upon the complainant's title to real property, have uniformly
been entertained. * * * It is no answer to such a bill that
the mortgagor has a good defense to a bill for the foreclosure of
the mortgage. an apparent encumbrance on the land. Its
It is
invalidity depends upon extrinsic facts. * * * The mortgage
is an impediment to a sale of the land for its value. The mort-
gagor is not bound to wait until the mortgagee attempts a foreclo-
surej not only for these reasons, but because, in the meantime, it
may become impossible to prove his defense. * * * The mere

circumstance that the land is in another State can, upon no prin-
ciple that I can discover, furnish a reason for denying the jurisdic-
tion of our courts, or for questioning the propriety of its exercise.
* * * It follows, that where a contract or obligation is given
for two or more separate and independent things or objects, having
no connection with each other, and one of those objects is the
security of a usurious debt, although the contract or obligation is
altogether void for reasons above given, and no action at law or

elsewhere could be maintained thereon, nevertheless, if the party
comes into a court of equity to ask that it be surrendered, all that
the statutes of usury have done affecting the complainant's right
to relief is to forbid that any payment, on account of such debt,
shall be made a condition of relief As to other conditions the
statute is silent, and the court is left to administer relief upon those
principles which govern the subject generally.
" Where, therefore, the plaintiff asks that a mortgage be canceled
as a cloud upon the title to his lands, and that a court of equity
shall so direct, in virtue of its power and its disposition to enforce

his equitable rights, the court may not require that he pay a usu-
rious debt, or any part thereof, or any interest thereon, but it may
446 LAW OF V8URT
require. the performance of any other duty which is just to the
adverse party, unembarrassed by the statutes in question.

" In equity, the mortgagor in such case stands, in reference to
debts
not usurious secured by the mortgage, in the same attitude as a
complainant seeking to redeem. He must pay what at law and in
equity he owes. Nor is this a,ny departure from the doctrine
already stated, that the mortgage, being void in part, because given
to secure a usurious debt, is void altogether.
" Upon that doctrine the plaintiff, if he sees fit, may rely ; and on
that ground he may, if he can, defend himself and the title to his
lands, wherever and whenever assailed. But if he asks affirmative

action and interference from a court of equity to set aside, the
mortgage and adjudge its surrender, he must do equity by paying
his just debt, not impeached for usury" {WiUiams^. Fitshugh
37 JSr. Y. B., 444, 448, 449, 455, 456).
And the Supreme Court of New York, in a well considered case
decided so late as November, 1871, laid down the doctrine that
the usury act of the State, passed in 1837, was not designed to
require a court of equity to entertain a suit which, according to
its settled practice, it would not have entertained before that act,
but only to relieve a borrower, under a usurious contract, from the

obligation to repay the money actually borrowed in cases where a
resort to a court of equity was necessary, either for discovery or
relief. It was declared that the former rule of courts of equity,
requiring a complainant who sought relief in that court against a
usurious contract, obligation or security, to repay the money actu-
ally loaned, with interest, as a condition of granting the relief,
was abrogated by the statute of 1837 only in behalf of the hir-
rower ; that the rule is not abrogated as to the grantee of the

borrower. Where such grantee, as such, commences a suit for
relief, the rule requiring him to do equity, as a condition of relief,
is held still to apply.

But the court further held that if there is no offer by such
grantee, before suit or in his complaint, to do equity, according to
the practice of the court, the omission to make such offer now
goes only to the question of costs. If the defendant, to recover
his equitable rights, has been compelled to defend the suit and to
appeal, the court declared that he is entitled to his costs. Other
important questions were considered in the case, but no others
upon this particular point {Bisaell v, Kellogg, 60 Barb. B., 617).

SqUITABLE BELIEF FOR USURY. . 447
The English courts held, while their statutes of usury were in
force, that a mortgagor impeaching a security for usury could
only be relieved on payment of what was justly due and if the ;
contract was that he should pay what- was due on a banking

account, that he must, according to this rule, pay what was due,
according to the account as usually kept between banker and cus-
tomer {Tumough v. Cooper, 31 Mig. Law and Eq. M., 526).
Under the statutes of Wisconsin against usury, it has been held
that a bill which sets up a usurious contract is not defective for
want of equity, even though it does not contain an offer to pay
the sum equitably due that is to say, such wâs declared to be the
;
rule in that State in 1857, which is substantially the same as under

the statutes of the State of New York {Cooper v. Tappan, 4 Wis.
JR., 362).
A difEerent rule prevails in the State of Arkansas. The courts of
that State have held that although the statute makes all bonds, notes,
conveyances, etc., void when taken on a usurious consideration,
yet, if the debtor comes into a court of chancery to set aside such
bonds, etc., on account of usury, he must, before he shall be enti-
tled to relief, whether the usury shall be established by answer
or other proof,, pay or offer to pay the principal actually borrowed
or advanced to him, with legal interest, or that the court will, on.
demurrer, dismiss his biU ; but, if the defendant answer- the bill
generally, that the court will proceed to render such decree as may
be consistent with equity ai)d good conscience {Suddell v. Ambler,
18 Ark. Ji., 369).
And, substantially, the same rule prevails in the State of Ala-
bama. It has been there held that, in a suit in equity to obtain
relief against usurious interest, the relief will be granted only on
payment of principal and lawfal interest {Noble v. Walker, 32
Ala. R., 456).
And in an early case before the same court it was held that
where a debtor comes into equity for relief against a judgment
at law or other legal security, on the ground of usury, when he
has, by his own voluntary act, deprived himself of the opportunity
to appear and plead the usury in the character of defendant, he is
required to pay principal and legal interest. But it was declared

that this rule does not apply, in the absence of such voluntary act,
where the heirs of the mortgagor came into equity to redeem the
mortgaged premises, to set aside a decree of foreclosure which
448 LAW OF uauRT.
was obtained by the creditor in a suit so conducted as to deprive

tliem of the opportunity to appear and plead the usury, and to
remove the cloud on their title created by the proceedings in the
foreclosure suit. It appears, however, that Walker, J., dissented
from the judgment of the court {Hvmt v. Acre, 28 Ala. B., 580).
The Court of Chancery of New Jersey holds that a party
seeking relief in equity against a usurious contract must offer to
pay the sum actually due, thus recognizing the ordinary rule m
equity, where there is no statute modifying the rule
( Ware v.
Thompson, 2 Bemley's B., 66 cmd vide Gwewns v. MoMurbry,
;
1 Green?» B., 468 fferdit v. JVa^t, lb., 550).

;
The Supreme Court of Ohio holds that the doctrine, that a

party seeking affirmative relief in a court of equity against a usuri-
ous contract, either byway of original or cross-petition, must first
do equity by tendering the amount due, exclusive of the usury,
does not apply to a defendant acting strictly on the defensive
( Union Banh v. Bdl, 14 Ohio If. S. B., 200). And the Supreme
Court of Iowa has held to the same doctrine, deciding that a
defendant in proceedings to foreclose a mortgage may set up the
defense of usury without first tendering to the plaintiff the amount
admitted to be due (Buhner v. Butler, 11 Iowa B., 364).
The Supreme Court of the United States have held that tlie.
general doctrine of equity, that a party complaining of usury can
have relief only for the excess above lawful interest, applies to the
case of a person standing in the position of a claimant, through bill
in equity of priority in a fund, another claimant upon which, as
defendaofc, is the alleged usurer ; and the fact that the suit is a
mere contest between different parties for a fund, and a contest,
therefore, in which each claimant may, in some sense, be consideied
an actor, does not force the alleged usurer into the position of com-
plainant or plaintiff, and so expose him to the penalty incurred by
a person seeking as plaintiff to recover a usurious debt ; that is,
expose him to the loss of the entire claim (<Sâi« v. Hamilton, 1
WaU. B., 604).

It has been held by the Supreme Court of the State of Illinois
that if the maker of a promissory note has been compelled to pay
it to a iona fide indoi-see, to whom it has been indoi'sed before
maturity and without notice, such payment will be regarded as
compulsory and the maker, in a suit in equity against the payee
;
and the indorser, may, under the general prayer for relief, recover
EQUITABLE RELIEF FOB VSURT. 449
of the payee the usurious portion of the note ( Word/worth v. Hun-

town, 48 111. JR., 131). And the same court held, at an earlier
date, that although after a transaction has been closed, usurious
interest cannot be recovered back, yet, while the transaction is still
open and the debt unpaid, a Court of Chancery, in stating the

amount, will allow as a credit upon the principal whatever usuri-
ous interest m^y have been paid {Parmelee v. La/wrenoe, 44 111.
R., 405).
Such are the general rules under which a party may have relief
in a court of equity against a usurious transaction. A court of

equity is bound by the and although upon the
statutes of usury;
complaint of the borrower aid will be extended to him upon the
terms of his paying the sum lent, with lawful interest, as a general
rule., so the rule is equally general and uniform that the lender
can havre no relief whatever, and his bill to enforce a- usurious eon-
tract will invariably be dismissed, except in those cases where
the matter is regulated by statute. A contract tainted with usury

is denounced as coi-rupt, and every court must treat it as holding
the character which the legislature has stamped upon it. Accord-
ingly, a court of equity capnot be invoked to aid such a contract in
whole or in part, or grant the usurer any affirmative relief. And

at the same time, the just and equitable maxim, that a plaintiff, to
entitle himself to equity must do equity, is uniformly applied to
eases of usury, except in those cases where the rule is abrogated by
statute. Where the borrower is sued, if he can prove the

usury, the lender must fail; but if the borrower cannot succeed
without calling upon the court for the exercise of its equitable
powers, the court invariably refuses its aid unless those who ask
for equity are willing to do equity themselves, While the court
will protect the borrower, they are careful to observe that, where
he seeks he does not himself become the oppressor. Before
relief,
he can appeal to their equitable jurisdiction, he must prove himself

VForthy their protection by performing all that equity requires at
his hands; and, therefore, he cannot demand their assistance
.against his creditor till he has first been in the same situation as
he stood before the bargain, by returning the principal rep,lly bor-
rowed, together with l9,wful interest,
57
450 li-AW OB USURT.
CHAPTEE XXXIY.
THE PBAOTICE IN CASES OF USUET PLEADINGS IN SUCH OASES,
BOTH m
LAW AND EQUITY AMENDMENTS OP THE PLEADINGS IN
THESE CASES.
The is, in some respects,

practice of the cotirts in cases of usury
peculiar and it becomes necessary, therefore, to refer to the prin-
;
ciples which are applied to these cases, which distinguish them from
ordinary suits. The action is prosecuted and defended by the same
process in these as in other cases ; but, for reasons satisfactory to
the courts, the principles which are recognized in ordinary cases,
both as to pleadings and practice, are sometimes ignored in these.
These due to the fq.ct that the courts

peculiarities are doubtless
look upon the' effort to take advantage of the statutes of usury as
hard and unconscionable, and, consequently, are more stringent ia
their rules in respect to usury cases than in most other legal pro-
ceedings. In this regard, the statute against usury, and the statute
of limitations, are usually considered in the same category. Nei-
ther of these statutes are usually regarded by the courts with the
utmost favor. Forfeitures and penalties on account of usury are
always prescribed by statute; and the manner of prosecuting for
them, and the time within which the action for the recovery of
them must be instituted, are also invariably prescribed by the

statute which imposes theiii. It is obvious, therefore, that it is
material to consider when the consummation of the offense takes

place, so as to charge the usurer, and bring the action within the
proper time.
According to the very earliest cases in England, the very mak-
ing of the usurious contract subjected the lender to the penalties
of the istatutes, although he never received a single farthing ; and
in an occasional State in this country, at the present time, the same
rule is enacted by statute. But the rule laid down in the earlier
cases is now nowhere by statute. It

recognized, unless enacted
was, however, declared in one of the first cases which questioned
this rule, that if one contracted to have twenty pounds upon the
loan of £100, and he took nothing of the twenty pounds, he should
not be punishable by the statute; but if he took anything, if but
one shilling, this was an affirmance of the contract, and made him
;
PRACTICE IN USURY CASUS. 451

liable for the whole {Mallory cited in Cro. EUz., 20).
v. Bi/rd,
But the rigor of this doctrine was considerably softened by an

interpolation of Mr. Justice Ashton, that by one shilling was meant
one shilling beyond the legal interest {Fisher v. Beesley, Doug.
E., 226 and vide Brown v. Fulshye, 4 Leon. R., 43).
;
All of the later English authorities are to the effect that when a
premium is paid for the loan, which, coupled with the interest,
exceeds the legal rate, the action does not accrue till the interest is
received. And though the usury

complete as soon as the lender
is
has received the interest in money or money's worth, yet the mere
taking of a promissory note for the payment of the sum lent, with
usurious interest, does not complete the usury, unless the bill be
paid ; for until it be paid, the lender has received nothing. If
money was by a check, the same rule would apply the usury
lent ;
would not be coniplete until the check was cashed. The difference ot
the effect of the statute in the avoiding of the contract on account of
usury, and the accruing of the penalty or forfeiture, is therefore
manifest. As soon as a usurious contract is made, it is, ipso facto,
db initio void, unless a different effect is given to the transaction
by statute. But the penalty or forfeiture does not arise upon the
making of the contract. That is only incurred by the execution
of the contract, or by the receipt of excessive interest without any
previous usurious agreement. The English authorities to this effect
are numerous and conclusive, and the American authorities are
quite uniform in holding the same doctrine. It is obvious, there-
fore, that the time limited by the statute in which the action may
be commenced on account of usury begins to run at the time the

excessive interest is paid,and not at the time it is contracted.
The action for the recovery of the penalty or forfeiture under
the English statute of usury was a local action by the express
words of the statute, and had to be brought in the county where
the ofEense was committed. As a general rule, all actions brought
to recover a penalty given by statute in the American States must
be brought in the county where the cause of action accrued,

although the question of venue is invariably regulated by statute.
The process by which an action is commenced, and the defendant
brought into court, in a case arising under the usury laws, is pre-
cisely the same as in other cases of a similar nature, and prosecuted
in the same court. The borrower of the money is as capable of

suing for the penalties given by the etatntes of usury as a stranger
:
452 LAW OF mrmr.

although it has been held that previously to the commencement of
the action he must repay, or at least tender, aU the money bor-
rowed but this is not now generally the rule. * It has been decided
;
that in commencing the action it is no variance or irregularity if

the plaintiff sues out the writ in his own name, and afterward
declares qui ta/m; for by this his demand is rather narrowed than
enlarged. This was so held by the English courts but the ques-
;
tion is one of practice, and the rule might not be regarded as uni-
form in the American States, where the action qui trnn may. be
brought.
In framing the declaration in an action on the English statute
of usury, several things were declared to be material to the valid-
ity of the pleadings, and any misstatement of which would pre-
vent the plaintifE 's recovering and the same things may be
. ;
pertinently considered in this country. These were:

1. The time of the contract or loan.
2. The cmimus quo of the person forbearing.
3. The whom the debt was forborne.
person to
4. The substance of the contract and forbearing.
5. The taking of the excess of interest.
6. The formal conclusion.
These requisites of the declaration under the old English
statutewere stated in their order by Mr. Comyn, over fifty years
ago, and they are generally adhered to in similar cases at the
present day. They will be considered in the order in which they
are given
1. The time of the contract or lending must be stated in the
declaration or complaint to be subsequent to the passage of the
statute, but if this appears by the terms of the contract or instru-
ment itself, it is sufficient without a formal allegation.

The day of the loan must be accurately stated, and a substantial
variance will be fatal to a recovery. The old English authorities

are very strict in this particular. Thus, for example, where the
corrupt agreement was stated to have been on the 26th of March,
1801, and it appeared that the money was not advanced until the
27th of the month, the plaintiff was nonsuited on account of the
variance {Ca/rlisle, qui tarn, y. Trewrs, Cowp. E., 671). And
where the loan was stated to be on the 21st of April and in proof ;
it appeared that on that day the borrower received from the

defendant, as part of the sum lent, a check which was void for
FBACTICE IN USURY CASES. 453
want of a stamp ; ,and tliat on the same day he paid this into his
bankers, who immediately gave him credit for the amount, but
that the banker did not receive payment of it until the next day,
Lord Ellenborough, 0. J., considering the check a nullity, thought

that there was no lending until the 22d April, when the money
was absolutely received. And, therefore, his lordship nonsuited
the plaintiff {Borrodcdle, qui tarn, v. Middleton, 2 Gamp. R., 63).
Other eases of similar import on the point are referred to by Mr.
Comyn, bat they need not be considered here. The two cases
cited are suflScient to Ulustrate the rule.
On the contrary, the English Court of King's Bench sustained
the declaration in the following case : Goulton owed Flintoffc
£600 on bond, and Flintoft was indebted to Wilson, the defend-

ant, in £1,200 on a promissory note. Flintoft being unable to
pay the defendant more than half of his debt, on account of the
default of Goulton, it was agreed between the respective parties,
on the 4th of April, 1798, that the defendant should accept

Goulton and one Yates, by way of surety for him, as defendant
debtors, for the remaining £600 instead of Flintoft ; the defend-
ant saying, however, that he would only lend Goulton the money
for one year, which was agreed to. Accordingly, Goulton and
Tates gave their promissory note of that date, by which they
jointly and severally promised to pay to the defendant or order
£600 on demand for value received, with interest after the rate of
S& per cent per amnvnn; and the defendant at the same time
received from Goulton a premium of ten guineas. Flintoft, how-
ever, having omitted to bring Goulton's bond with him, it was
agreed that the old securities should be the next day delivered and
canceled, which was accordingly done. The declaration laid, it as
a loan of money from the defendant to Goulton on the 4th of
April, 1798.
It was objected that there was no loan of money, none having
been received by Goulton ; and that making himself the debtor
instead of Flintoft,and giving his own note for the money, did not
constitute a loan, though it might have been laid as a corrupt con-
tract; or if it did, constitute a loan, it was not such to Goulton
alone, but to him and Yates jointly. It was also objected that the
loan was improperly stated to be on the 4th of April for that the
;
agreement did not take effect until the bond given by Goulton to
454 LAW OF USURT.
Flintoft was canceled. The court overraled all the objections, and
held the transaction to be rightly described.
Lord Kenyon, C. J., said " There is no weight in any of the objec-
:
tions. This was in substance a loan of money from the defendant

to Goulton, although the ceremony of handing the money over
from the one to the other did not take place. But the loan origi-
nally advanced to Flintoft was by agreement transferred to Goul-
ton. This transaction took place on, the 4th of April, when the
note was given, and on that day was agreed that the old securi-
it
ties should be given up, though it was not actually done till the
next day, the parties not having them ready at the place. The
objection proceeds upon an assumption of fact not well founded."
Grose, J., declared liimself of the same opinion.
Lawrence andLe Blanc, J J., both delivered opinions resulting
in the same conclusion as Lord Kenyon ( Wade, qui tarn, v. Wilson,
lEast:sB.,l^S).
2. In respect to the ani/nvus quo of the person forbearing, it is
well settled that a mere mistake will not make the lender liable as
for usury. It is obvious, therefore, that in order to charge him, it
must be expressly stated in the declaration or complaint that the

taking of excessive interest was by a corrupt agreement, and so
hold the authorities.
3. It is also necessary to state in the pleading with precision the
person to whom the forbearance was given. Where the contract
was laid in an information for usury to be with ^persons unknown,
the court held the pleading defective {JVasie's Case, N'oy''s B., 143).
Although it appears that though it be not specially averred that
the forbearance was to A., if it appears to have been so with cer-
tainty from the whole pleading, it will be sufficient {Ma/rshall v.

Bvrheoishaw, 4 Bos. <& Bui. B., 1Y2).
And it has been held that if more than legal interest be taken by
the defendant, on a note given to A. by B. as a collateral security
for money lent to C. and indorsed by A. to the defendant, such
usury is well described to be for the forbearance of money lent by
the defendant to B. {Manners, qui tarn, r. Bostwn, 3 Bos. & Bid.
B., 343).
So, also, it has been held that if a person discounts a biU of
exchange and pays for it the amount of the contents, deducting
only legal interest, and on a subsequent day receives usurious inte-
rest under pretense of guaranteeing the acceptor, the sum first
;
PRACTICE IN mURT CASES. 455
paid may be laid as forborne to the person who first received the
money on indorsing it to the discotintor, even supposing that that
person if sued on the bill might recover over against the diseountor
as guarantor (Lee, qui tarn, v. Cass, 1 Taunt. ^.,511).
4. In setting out the contract in the pleading, it is sufficient to
describe the corrupt bargain generally, because matters of this kind
are supposed to be privily transacted, and the action or information
maybe brought by a stranger, who cannot have
the same means of
knowledge as the parties themselves. The authorities, and espe-
cially the old authorities, generally hold that there are three points,
however, upon which strict accuracy is requisite, because the judg-
ment depends upon them. These are the sum forborne, the time
for which it is forborne, and the excess of interest taken.
In an early case before the English Court of Common

Pleas, the action was brought for the penalty under the star
tute of usury, aiyi the declaration stated a specific sum of

money to have been lent (inwhich the usury consisted), but
the evidence on the trial showed that the loan was part in
money and the rest in goods of a, known value, to wit, old
gold, among which was an old tooth-pick case,, taken as cash at a
specified price, by the party receiving the loan. An objection was

taken to the evidence that it was variant from the declaration but ;
Lord Loughborough held that the contract was proved as laid,

because it was not originally a contract for the delivery of goods,
but for the loan of money. The contract was for the loan of money
and it was only in the execution of the contract that a particular
commodity was made to stand in the place of the thing which

constituted the value. A
verdict was taken for the plaintiff, and a
rule was obtained to show cause why the verdict should not be set
aside and a new trial granted, on the ground that there was a vari-
ance. But the court in banc unanimously sustained the ruling at
the and discharged the rule.
trial,
Loughborough, C. J., in his opinion, said " I lay no stress on :
the commodity being gold. I think if any other commodity of

less easy sale had been so estimated, the case would have been
precisely the same."

Heath, J., said :
"I am of the same opinion. The declaration
seems tome to be well framed and sufficiently proved. It would
make a great difference if the delivery of the goods were to be a
part of the shift and no part of the original contract. I do not see
;
456 LAW OF USUBT.
two contracts, was said there appears to me to be but one

as it ;
and a piece of was substituted as coin."

bullion
"Wilson, J., said " I am of the same opinion.
: There is no
doubt but that if the goods had been part of the cover or shift, it
should have been stated as that would have been in the descrip-
;
tion of the offense " {Barbe, qwi tcrni, v. Parher, 1 H. Bl. B., 283,
288, 289),
It has been held that the time of forbearance must be stated with
accuracy, as well as the time of the loan. And it has been said in
some cases that where there is a loan for twelve months, this shall
be intended of calendar, and not lunar months {Sir WoUaston
Dixie's Case, 1 Leon. B., 96). In legal proceedings, however, the
Court of King's Bench held that a month menos four weeks;
though it was said that six months are understood to be six calen-
dar months, or half of a year {Tullet v. Linfidd, 3 Bwn: B,,
1455).
The excess of interest must also be correctly set out to show ;
that more than legal interest was taken will not suffice, unless the
exact amount be stated. At least, such was the old rule; and
there does not seem to have been any departure from it, except
where the practice of the courts has been liberalized by statute
{Ma/rUn Yam, EarbucTc's Case, 2 Leon- B., 39, pi. 52).
In the State of North Carolina it was held, so late as 1855, that
in a qm tarn action for usury the declaration must state precisely
and accurately the sum lent and forbearance, the time of forbear-
ance, and the excess of interest.
Battle, J., said " In a qui tarn action for usury the declara-
:
tion must state precisely and accurately the sum lent and forborne,
the time of forbearance and the excess of interest, because these
three points are indispensable to enable the court to see on the
record that the interest received, according to the sum lent and the
time, was at a rate forbidden by law, and the proofs must sustain
the allegations as laid " {Taylor v. Gobi, 3 Jones' L. B., 138,
140).
And in 1845 the same court held a similar doctrine to the full-
est extent in a case qui tarn for usury, wherein the declaration
was that the defendant had corruptly taken, on the 20th of April,
1844, twenty-five dollars usurious interest on a contract for the
forbearance of $175, from the 21st of April, 1843, to the said 20th
of April, 1844 ; and the proof was that the usurious interest was
:;
PRACTICE IN UBUBT CASES. 457

taken for the forbearance of $175 from the 21st of April, 1843, to
the 21st of April, 1844. The court held that there was a fatal
variance, though it was but for one day.
EufBn, C. J., delivered the opinion of the court, and said
"The court agrees with his honor that according to the contract as
appearing on paper, there is a substantial variance from that
stated in the declaration, although it be not requisite in a declara-
tion, as it is in a plea, to describe the usurious contract specially,
but it may be done generally, inasmuch as the action is given to a
stranger who may not be able to ascertain all the particulars (1
Saund., 295, note) ;
yet the precedents and authority show that
the declaration must be precise and accurate in the statements of
the sum lent and forborne, the time of forbearance, and the excess
of interest, because these three points are indispensable to enable
the court to see on the record that the interest received according
to the sum and the time was at the rate forbidden by law
lent
and the proofs must sustain the allegations as laid. And these
points must.be stated according to the facts; for, as Lord Kenyon
said, in Hex v. GUiham, (6 T. B., 265), they must be found as laid"
{AUen V. Ferguson, 6 Ired. R., 17, 20).

The declaration or complaint must state that the corrupt agree-
ment was followed up by a loan and the actual receipt of excessive
interest. This requisite of the pleading would seem almost as a
matter of course but it has been expressly declared by the courts
;
(
Tide Rex v. Tipton, Stramge's R., 816).
The old authorities required that the declaration in an action to
recover the penalty or forfeiture imposed by the statutes of usury
should end with the formal averment, contra for mam statute,
though was held not to be necessary to aver the particular
it
statute {Toptclif,qui tarn, v. Waller, Dyer's R., 346 S. C, 1 And. ;
R., 48, pi. 122). It is improper to state any damage in a declara-

tion qui tarn, because, until the informer's commencing the action,
no interest attaches to him, and the debt only arises upon the
judgment. At least, this has frequently been held in analogous
cases brought to recover penalties imposed by statutes ( Vide Frede-
rick V. Lookup, qui tarn, in &rror, 4 Bu/rr. R., 2018 ;
Corning v.
&%, lb., 2489).

In some States, as in the State of ITew York, the statute pro-
^des that, the borrower may bring the action to recover the excess
of interest paid by him within a specified time, after which the
58
458 LAW OF VSURT.
action given to an informer, overseer of the poor, or the like.

is
In such case, in an action qui torn,, the declaration must state that
the party aggrieved neglected to sue within the time prescribed
( Vide Morrel ^.Fuller, 7 Johns. R., 402).
A complaint to recover usurious interest alleged a loan in July,
1856, for which a note was given and several renewals of the note,
;
at each of which sums exceeding the legal rate of interest were

" required " under pretext of exchange, and then averred that all
the sums thus required were paid in December 1, 1857. The
action was commenced in November, 1858, and there was a
demurrer. The Supreme Court of Wisconsin held that a judg-
ment of usury within one year was sufficiently alleged {DwTeee v.
Ciiy Bank, 13 Wis. E., 216).
The requisites of a complaint in equity for relief in cases of
usury are not essentially different from those of a complaint in
other cases of an equitable nature. It has been heretofore shown
in what cases a court of equity will grant relief in a usurious trans-
action, and the terms and conditions on which the relief will be
granted. It is only needfnl that care should be taken to set up

fullyand accurately in the complaint the facts of the case, and
that the terms and conditions for relief have been complied
all
with, on the part of the complainant, bearing in mind always that

the courts are more rigid and technical in their practice in cases
of usury than in ordinary cases of equity jurisdiction.
In respect to the answer or plea, where the party seeks to avail
himself of usury as a defense, most of the suggestions which have
been made in regard to the declaration or complaint, in cases of
usury, will apply here, with the additional remark that courts are
even more exacting of the' pleader when usury is set up as a
j
defense to an action, than when it is laid as a foundation for

affirmative relief.
As a general rule, it may be affirmed that the defendant cannot
avail himself of the defense of usury in a contract or other instru-
ment, under a general answer denying the plaintiff's right, as
claimed in his declaration or complaint. He must, in his answer
or plea, both at law and in equity, set up the usury specifically,
stating distinctlyand correctly the terms of the usurious agree-

ment and the amount of the usurious premium. The practice
will be better understood and illustrated by a brief reference to
some of the leading cases upon the point.
PRACTICE IN USUSr CASES. , 459
The late Court of Chancery of the State of New York decided
that the courts cannot take notice of the usury laws of sister States,
but that they must be proven ; and the court held that, where an
answer sets up usury in violation of the laws of another State, it
I
must state what those laws were at the time of the sale of certain
bonds alleged to be usurious, as well as the facts and circumstances
of the transaction {Hosford v. Nichols, 1 Paiges R., 220 Curtis;
V. Martin, 11 ib., 15 omd vide

; Cutler v. Wright, 22 N. Y. B., 4T2).
•
The same Court of Chancery held that in a suit, either in equity
or at law, founded on a specialty, the terms of the usurious agree-
ment, and the amount of the usurious premium, must be set out
distinctly and correctly in the answer or plea, and the proof must
sustain . these statements and that if the contract proved is

;
materially different from that alleged in the answer or plea, the

defendant must fail, even though the contract proved is usurious
{New Orleans Gas-light omd Banking Co. y. 'Dudley, 8 Paiges R.,
457 Vroom v. PiPmas, 4 *5., 526). And the same court, before
;
the assistant vice-chancellor of the first circuit, declared that a

general allegation of usury was unavailing. The averment was
that a fictitious item of $112 was included in a settlement, and
inserted as a part of the consideration of abond and mortgage
given thereon by way of usury and the defendant proved that the
;
complainant said he had taken usury, or that there was, usury in

the mortgage that th^ mortgagors paid him more than seven per
;
cent, and that he mentioned at simdry times various rates of usuri-
ous interest. The court held that the evidence did not support
the averment, none of the rates mentioned would pro-
and that as
duce the item of $112, would not support it, even if the proof
it
were that usury at some of these rates was included in the bond and
mortgage {Powe v. PhilUps, 2 Sand. Ch. P., 14). And the same
assistant vice-chancellor held that proof of usury is inadmissible,
unless the answer avers that there was a loan or that the transac-
tion was a cover for a loan {JELolford v. Blatchford, 2 Sand. Ch.
P., 149).
In a late case before the Supreme Court of the State of New
York, the question of the sufficiency of an answer of usury was
examined. The action was upon certain drafts discounted by the
plaintiff for the defendant. The defense was usury. The answer
alleged that the plaintiff discounted the drafts at a usurious rate of
interest, contrary to the statute in such case made and provided,
460 LAW OF USUST.
taking from the defendant the sum of fifteen dollars for the time
they had to run, though it did not in express terms state that the
agreement was intentionally usurious. The plaintiff moved for judg-
ment on account of the frivolousness of the answer. The court at
Special Term denied the motion, and the plaintiff appealed. The
order was aflSrmed, but the court declared the doctrine that where
usury is set up as a defense the usurious contract should be so
pleaded as that it may appear what rate or amount of interest was
taken or received, and on what sum, and for what time, and that
the answer should show a corrupt intent.
Gierke, J., in his opinion, said " In the answer before us it ig
:
expressly stated that the plaintiffs, in discounting the drafts, took

the sum of fifteen dollars for the time which they had to run, thus
averring what the usurious agreement was, between whom it wa»
made, and the qucmtuTn of usurious interest that was agreed upon
and received. It does not, indeed, in express terms, state that the
agreement was intentionally usurious and corrupt; but I think
this must be necessarily inferred. At all events, the answer avers
that the plaintiffs discounted the drafts at a usurious rate of inte-
rest, contrary to the statute in such case made and provided, and
then specifies the amount of interest taken. This may or may not
be an insufficient averment of a corrupt interest, but it is not so
palpably defective in this respect as to authorize a judgment for
frivolousness."
Ingraham, J., remarked :
" If usury is set up as a defense, but
defectively, the answer is not frivolous, though it may be bad on
demurrer " {The National Bank of the Metropolis v. Orcutt, 48
Barb. B., 256-258).
In the State of New Hampshire, the Supreme Court holds that
a plea of usury concluding with a verification is good, but perhaps
there is nothing in this doctrine that is peculiar to a pleading in a
case of usury (Qwwnison v. Gregg, 2,0 N. H. B., 100).
Under the usury act of 1845, in the State of Maryland, held,
not repealed by the new Constitution of the State, it has been
decided that usury must be specially set up as a defense or the
court will not notice it ; and such is the rule at the present time in
that State, as it is in most of the States where usury laws exist
{Bandel v. Tsaao, 13 Md. B., 302).
In the State of Indiana, it has been held that in a suit on a pro-
missory note a defense seeking to anaul the entire contract for

PBACTICE IN USURY CASES. 461
usury, without showing what amount of illegal interest it includes,
is bad {OoUins v. Makepeace, 13 Ind. R., 448). And in the State of

Illinois, it âs been held that a plea of usury, professing to answer
the whole count of the declaration, while it only answers so much
of it as claims to recover more than legal interest, is bad on
demurrer {Ntehols v. StewaH, 21 III. B., 106).

"While usury could be pleaded in Massachussetts, it was held
that an answer by an indorser to an action on a promissory note
does not sufficiently aver usury by averring that the " plaintiff
reserved a greater rate of interest than is allowed by law, at the
time of discounting said note for the defendant, to wit," a certain
sum {Clarke v. Hastings, 9 Granfs R., 64).
In the State of Arkansas, it has recently been held that, in
pleading usury, the intention to take or reserve more than legal
rate of interest must be averred {Moody v. Hawkins, 25 Ark. R.,
191). An answer under the usury laws averred that the payee
" had reason to believe," etc. The Supreme Court of Ohio held,
that upon motion the court had authority to order the facts to be
set out, but that generally the payee must know better than the
. maker what the facts were which influenced any belief he might
have formed; and therefore the answer was held good {Gah-
ha/rt V. Sorrels, 9 Ohio N. S. R., 461).
The Supreme Court of Illinois has decided that, in an action by

the indorsee of a promissory note against the maker, a plea
intended as a plea of usury should aver that the note was payable
to the original payee only colorably, and to evade the usury law,
and that the transaction was, in fact, money from
a direct loan of
the indorsee to the maker of the note. An
averment in the plea,
that the indorsee " unlawfully, corruptly and usuriously" con-
tracted with the maker, was declared to amount to nothing, unless
facts are alleged showing wherein the usury consists {Durham v.
Tucker, 40 lU. R., 519).

In Michigan, was held, where an answer set forth the whole
it
of a transaction in which usury was alleged, and showed the

knowledge and participation of the complainant in the whole
^rangement from which usury necessarily resulted, that it was
sufficiently averred that complainant had notice of the usury
{Oaruthers v. Humphrey, 12 Mioh. R., 270). And in the State

of Iowa it has been held that usury, though not directly pleaded,
462 LAW OF ususr.
may be up by allegations showing that an unlawful rate of

set
Interest was agreed upon {Kv/rz v. HolMooh, 13 Iowa R., 562).
In some of the States, as in New York, statutes exist regula-
ting the practice and pleadings in courts, and containing pro-
visions upon the subject of variances between the pleadings and
proofs in an action. The Code of New York provides that no .
variance between the allegation in a pleading and the proof shall

be deemed material, unless it shall actuaUy have misled the
adverse party to his prejudice in maintaining his action or defense
{Code of Prooedwre, § 169). The Court of Appeals of the State
have decided that the provisions of the Code of Procedure upon
this subject are applicable to all actions, and have, therefore,
changed the strict rules usually governing in cases of usury.
Johnson, J., delivered the opinion of the court, and, among other
things, said :
" "We are not, I conceive, warranted in applying a
different rule to the defense of usury from that which we would
hold applicable in other cases. It is a defense allowed and pro-
vided by law. The defendant, in seeking to avail himself of the
evidence, notwithstanding the variance, did not claim an indul-'
gence from the court, but simply asked for the application of those
rules which the legislature has provided for aU cases indiscrimin-
ately, whether the party invoking their exercise was seeking to
visit his adversary with a forfeiture or not. The law has not
made any distinction between such defenses and those where no
forfeiture is involved, and the court can make none " {GatVm v.
Gwiter, 11 W. T. B., 368, 375).
In a subsequent case in the same courtit was held, where the
answer averred usury in formal terms without stating the quantww,,

or a corrupt agreement for its payment, that the plaintiff was enti-
tled to judgment for its frivolousness, and need not move to make
it more definite and certain. The old rule was referred to which
requires that the pleading shall contain averments of what the
usurious agreement was, between whom it was made, the quantum
of usurious interest that was agreed upon or received, and that the
agreement was intentionally usurious and corrupt, all with par-
ticularity. And it was held that the present system of pleading
in the State, which requires the facts constituting a defense to be
plainly and concisely set forth, did not relax the rule {Mannmg v.
Tyler, 21 Hf. T. R., 567). The same doctrine had been previously
PRACTICE IN USURY CASUS. 463
declared in the Supreme Court of the State (Jây v. Grimestead, 10

JScM'b. B., 321, 329 Gould v. Bbmer, 12
; ib., 601).
The Court of Appeals of New York, in a case decided subse-
quent to the one in the 21st New Tork, held that an answer
was up the defense of usury to an action on a
sufficient to set
promissory note where it states an agreement, upon the appli-

cation for a loan, to give more than legal interest and that the ;
lender deducted from the amount for which, with interest, the note
was made " almost enough, as he said, to huy a barrel of flour j
which amount, as ,the defendants believe, was seven or eight dol-
lars." The case in the 21st New Tork was considered and
distinguished, although one of the judges thought that the case
under consideration fell directly within the principle settled by the
court in that case, ah.d that the answer did not come up to the rule
there laid down {Bagal v. Simmons, 23 JSf. T. B., 491, 494, 495).
It may be suggested, and yet the suggestion would hardly seem
to be necessary, that the defense of usury will never be received
for the first time in an appellate court. The Supreme Court of the
United States have recently declared that in an action on a note
the defense of usury, to avail the defendant, must be made in the
court below ; that it cannot^ for the first time, be set up in that
court {JEwing v. Howa/rd, T Wall. B., 499 ; and vide Butherford
V. i^,ith, 28 Tex. B., 332).
The pleadings may be amended in cases involving usury as well
as in other cases but where the amendment is not provided for,
;
as a matter of course, the permission to amend is entirely in the

discretion of the court, and the discretion is not as liberally exer-
cised in these as in ordinary cases. As a general rule, the law does
not deem it in furtherance of justice to allow a. party to amend his
pleading so as to enable him to defealt a recovery for the amount
actually due by the defense of usury; and, hence, the court will
not usually allow such amendments, unless the ordinary rule in
such cases has been changed by statute. The defense of usury
is regarded as a strict one, and if the party lets it slip or loses the
benefit of it in any way, the court will not, as a 'general rule,
reheve him. Usury is considered as an unconscionable defense,
and if the defendant intends to rely upon it, he must take care to
set it up at the proper time and in a proper way. He is not sup-
posed to be entitled to any special favor for the purpose of enabling
him to bring about a forfeiture of the debt he has created, or te
464 LAW OF USURY.
defeat a recovery of the money which he has actually horrowed.

The authorities upon this subject are all the same way, and in har-
mony with this view.
The
late Court of Chancery of the State of Ifew York refused
toopen the proofs in a case to allow the defendant to amend his
answer so as to admit the defense of usury, except upon the condi-
payment of the sum actually due, with lawful interest
tion of the
{FuUon Bamk v. JBeaoh, 1 Podges R., 429). This case was
taken to the Court of Errors, where the chancellor's rding was
sustained.
Savage, C. J., in his opinion, said :
" It is known to every law-
yer that there are certain defenses which are' legal, but which are
not encouraged, and are sometimes called unconscionable. Thus,
in a loan of money where there is an excess of interest, however
much the excess contracted for ibay be over the legal rate of inte-
rest, it is usury, which avoids the security, and the creditor loses his
whole demand. So, where an indulgent creditor permits the statute
of limitations to attach, the precumption of the law is that the
debt is paid, though the fact, g.enerally, is otherwise. WheH
defenses of this nature are interposed, and when the court must
see and know that the defendant is seeking to avoid the payment
of an honest debt, they will require him to bring himself within
the practice of the court in the first instance, and if he makes a
slip, they will not treat him with that indulgence which is freely
extended to others. Hence, in a court of law, the defendant who

is bound to plead usury is also bound to. prove it as pleaded, and
courts of law are cautious how they grant leave to amend to enable
a party to sustain an unconscionable defense, or to aid him in a penal
action " {Beach v. Fulton Bank, 3 Wend. R., 573, 585, 586).
The courts of New Jersey have held that a defendant asking
leave to defend, as a matter of favor, will not be allowed by a
court of either law or equity to avail himself of usury {Marsh v.
Lasher, 2 Beasley's B., 263).

The Superior Court of the city of ITew York has decided that
where the answer does not allege usury, a motion for the allow-
ance of an amendment setting up such defense is properly refused

{Smalley Boughty, 6 Bosw. B., 66). But the Supreme Court
v.
of Wisconsin has held that an answer intended to set up usury as a

defense may be amended to meet the -proot It was questioned,
however, whether the court will allow an amendment to that effect
;
PRAOTJOS IN VSTTET CASES. 465
without an offer to pay the amount justly due (Newmcm v. K&r-

dmw, 10 Wis. ^.,333).
The principle by which the courts were governed in these cases
may be gathered from the considerations already presented, and,
perhaps, nothing fiirther need be said upon the point.
CHAPTER XXXV.
COMPOUNDINa A PENAL ACTION FOE ITSUET —
TEIAL OF AJST ACTION
INVOLVING rSUEY COMPETENCY OF THE WITNESSES AND THE
EVIDENCE IN THE ACTION —
THE VEEDICT AND JUDGMENT OPENING
DEFAULT AND GEANTING NEW TRIALS —
THE CONSEQUENCES OF THE
TRIAL IN PENAL ACTIONS FOE USUKT.
It is not competent, as a general rule, for the prosecution, in a

qm twm action for usury, to compound the action of his own
volition ; although he may compound and settle it with the leave
of the court. Should the prosecutor settle the matter with the
defendant without the leave of the court, he would be liable him-
BeE But the court will almost always grant this leave, even after
a verdict in the action {Maugham,, qui tarn, v. Walker, 5 T. JR., 48).
In some cases the court has granted relief to a defendant in a qui
tarn action for usury, on payment of a part- of the penalties
incurred, where he is prosecuted to recover more than one for-
feiture on account of usurious transactions and where a rule has
;
been obtained by the defendant for staying the proceedings on

payment of part of the penalties, it seems that the court will
grant an attachment against him for nonpayment {Hart, qui tarni,
V. Brofper, 2 Marsh. E., 358 Xing v. Clifton, 5 T. B., 25r;.
;
The rule in England in such cases is, that the attorney-general

may enter a nolle prosequi, on behalf of the crown but he can- ;
,not enter it except for the king's part of the penalty {Sbratton v.
Taylor, Gro. EUb. 138). The same rule, doubtless, would be
recognized in this country ; though the prosecuting attorney here,
Oossibly, would have to get the consent of the court in such a
case. Where
the action is brought by the borrower himself to
recover usurious interest paid by him, he may compound and set-
tle the action without applying to the court for leave to do so
59
466 LAW OF TTSURT.
and yet if he was to discontinue the action -without terms, it is

prohable that the action given to other parties on failure of the
borrower to prosecute within the time limited by the statute
might then be brought. The trial of an action on account of
usuryis brought on and proceeded with in the same manner
as
other actions ; and, as a general rule, it may be said that the pro-
ceedings on the trial in these cases are governed
by the same
practice which control in all others.
In respect to the competency of witnesses in these cases, where
no statute intervenes, it has been decided, and such is the rule
that where an action q^d torn is brought by a stranger, the bor-
rower will be a competent witness to prove the usury after the
repayment of the money {Long^s Case, 1 Ventr. JR., 191) and it ;
is not discovered how the action could be sustained in any event,

unless the money had been repaid, for there can be no usury for
which an action can be brought, until the money borrowed and
the legal and excessive interest have been paid; at least, such is
the general rule, although there is an occasional instance where
the statute gives an action for the simple agreement to take
usury. But it was anciently held that, in order to let in the bor-
rower's evidence, it was necessary to show that the money had
been repaid. And in one case, the court refused to let the bor-
rower himself prove the repayment, conceiving that, until the
money was shown to have been repaid, he could be no witness at
all {Shank, qui tarn, v. Payne, 8l/ra/nge^s R., 633). Subsequently,
however, the English Court of King's Bench held that the bor-
rower was a competent witness to prove both the usurious contract
and the repayment of the money because they thought that the
;
repayment itself established his competency and credit.

Lord Mansfield delivered the opinion of the court, and, among
other things, said " The objection to the competence of the wit-
:
ness can only be supported by arguing either '

that the event of
this penal prosecution in favor of the plaintiff wiU a/ooid the bond,
assurance or contract of the witness, and discha/ege him from the
debt ;
' or '
upon the swme points and
that the cause turns trans-
proved in another cause, would avoid the same.'

actions which, if
The foundation fails in both propositions, and the consequence
would not follow in the last, if the premises were true.
No contract or assurance appears here for usury ; or so much
as to repay the pioney. And if thgre was, the recovery of the
"
PRACTICE IN USUBT CASES. 467
penalty upon this information would not affect the contract.

* * * But
be necessary to prove payment, and the party
if it
is not to be heard as a witness to prove such payment, the statute
would be as, effectually repealed as if the borrower could never be

a witness at all; for they never would suffer anybody else to be
privy to the payment, delivering up, or canceling the securities
{Abrahams v. Brown, 4 Burr. R., 2251, 2253, 2256).
This decision has since been reviewed and confirmed in a case
where an action had been brought to recover the penalties of the
statute upon a loan and forbearance to one Brown, who was
called as a witness to prove the transaction. In addition to his
being the borrower, it appeared that he was an uncertificated
bankrupt ; and although the sums paid in the declaration had
been paid with the lavrful interest, still he was largely indebted to
the defendants on a running account for different loans, in which
the sums declared on were included. Lord Kenyon suffered him
to be a witness, thinking that the objection went to his credit, and
not to his competency {Smith, gwl tarn, v. Prager, 2 Esp.JS'. P
C, 4:86). And this opinionhe afterward confirmed, on a motion
for a new. trial [Smith, qid tarn, y. Prager, 7 T. P., 60 and vide ;
Burt V. Baker, 3 *5., 2Y). So its being

that, in addition to
establishedunder the Enghsh statute that the borrower might
prove the whole case, it seems that not even his being indebted
to the defendants on a general balance would affect his compe-
tency, provided the particular sums in question had been paid.
But the English courts decided that in an action on the statute
agajnst the assignee of a bankrupt, for taking usurious interest on
a loan of money bankrupt before his bankruptcy, the bank-
to the
rupt was not a competent witness to prove the offense, if he had not
obtained his certificate, or repaid the money ; notwithstanding he
was willing to give a release to his assignees of the benefit which
might arise from the discharge of this debt in particular, and all
claim to allowance or surplus in general; and notwithstanding the
assigneehad proved his demand for the money lent under the com-
mission {Masters, qm tarn, v. Drayton,, 2 T. P., 496).
The Supreme Court of Delaware has held that the obligor in abond
given on a usurious contract is a competent witness to prove the
usury in an action qui tarn {Bonner v. Gregg, 1 Harring. P.,
523). And the Supreme Judicial Court of Massachusetts held
that upon an indictment for taking excessiye usury the borrowe)
468 ZAW or usury.
is a competent witness for the prosecution, if he be not entitled to

a part of the penalty by inference, notwithstanding he has never
repaid, themoney borrowed {Commonwealth v. Frost, 5 Mass.R.
53 cmd vide Pettmgill v. Brown, 1 Ccdnes' E.^ 168).
;
It may be affirmed, therefore, that a person who has borrowed

money on a usurious transaction is a competent witness for the
plaintiff inan action for penalties against the lender; and whether
he has or has not repaid the money lent does not appear to make
any essential difference, at least so far as his competency is affected,
for in neither case does he gain anything immediately by the event
of the suit, nor can he give the judgment in evidence in an action
against him for the money lent.
The Supreme Judicial Court of Massachusetts has also held. that
in an action to recover back usurious interest paid, the original
debtor is a competent witness under the statutes of that State
{Gifford V. Whitcoml), 9 Gush. R., 482).
In some of the States, as in New York, the statute provides that
no witness shall be excluded on the ground of interest ; and the
parties to the action may be sworn for or against themselves.
When such is the law, scarcely any question can arise as to the
competency of witnesses in any action,; although it may be affirmed
that, as a general rule, a party cannot be compelled to give evidence
against himself upon an issue of usury, for the reason that no per-
son is bound to give evidence which may involve him in a forfeit-
ure or a criminal prosecution.

As what will be evidence against a defendant in an action for
to
usury, was held by the Court of Common Pleas of England,
it
where the usury was in discounting a bill, and it appeared that one
Brown demanded payment of the acceptor, and commenced an
action against him in order to compel payment, in consequence of
which a person on behalf of the acceptor paid to Brown the
amount of the bill and the costs of the suit on producing the bill,
for which Brown gave a receipt as the attorney for the defendant,
and no account was given how Brown came by the bill, that there
was sufficient evidence to be left to a jury that Brown acted as the
defendant's agent, and consequently that the defendant had
received usurious interest {Owen, qm tarn, v. Barrow, 4 Bos. £&
Full. B., 101).
It must be remembered that, upon the issue of usury, presump-
tions, as in ordinary actions, are not to be indulged. In fact, the
PRACTICE IN USURY CASES. 469
presumption is always in favor of the innocence of the party and

the legality of the transaction, and hence the evidence of usnrj
must be clear and convincing before the allegation can be sus-
tained.
It has been previously shown that usury must be proved sub-
stantially as it is averred in the pleading, and it must be proved to
have been received from the person named in the information as

having paid it or from his agent {Swinney v. State, 14 Ind. li.,
315). And the information must aver, and the prosecution must
prove, a corrupt or usurious intent {Block v. State, 14 Ind. M., 425).
The courts of New Jersey have held that when usury is relied on
as a defense to a contract or other instrument, it is not enough that

the relation of the witnesses to each other, and the circumstances
sworn to by them, render it highly probable that the transaction
was usurious ; that the usury must be proved, not left to conjec-
ture. Nor- will it avail the defendant that the case makes out
usury, if it is not the case made by the answer. The corrupt
agreement must be distinctly set up and proved, as alleged {New
Jersey, etc., Compamy v. Turner, 1 MoGarter's R., 326).
The Supreme Judicial Court of Massachusetts has held that,
where more than six per cent interest was paid on a promissory note,
made in that State, and not appearing on its face to be payable
elsewhere, evidence, was inadmissible, in an action to recover back
the usurious interest, that the note and a promise made at the
same time to pay more than six per cent interest were in pursuance
of an oral agreement previously made in another State, where the rate
of interest paid was the lawful rate {Hollenbeok v. Shutts, 1 Ghroy's
R., 431). It may be stated that it is competent for a party to
show an agreement by parol to pay an additional sum at some
future day, as interest on a note or bond on which the lawful
interest is reserved, and such proof will render the transaction
usurious. And if diflFerent may be
instruments are given, they
considered as one transaction. So one may give a note for a part
of a debt and agree by parol to pay the balance, and the effect will
be just, the same as though the written and parol contract were
merged in one. The law wiU not be defeated by any device to
cover usury. The authorities are numerous to illustrate this doc-
trine ( Tide Maeomher v. Dvmhwm, 8 Wend R., 554 Merrills v, ;
Imw, 9 Gow. R., 65 ; Hammond v. Hoppmg, 13 Wend. R., 510,

611; Austin v. Fuller, 12 Bari. R., 360, 363).
470 LAV OF USVBT.
As to the evidence /oT" the defendant in a qm tarn action, it was

held by the English courts that where had been proved that the
it
defendant had taken from one Sebank fifty pounds for the loan of
£1,000, for six months, it was not competent for the defendant to
give in evidence an account in the handwriting of Sebank, wherein
he admitted part of this fifty pounds to have been paid on the
balance of an old account {Mcmghan, qui ta/m, v. WdLJe&r, PeakSi
N. P. C, 163).
Where usury is set up as a defense to an iastnunent which has
been assigned, the action to enforce which is prosecuted by the
assignee, it is not competent for, the defendant to give in evidence
the declaration of the assignor of the instrument made prior to his
assignment of the same, to .show that was given upon a usurious

it
loan. The rule of the law of evidence which exelndes hearsay

testiihony is of great practical value, and it has been held by the
New York Court of Appeals to apply to a case of alleged usury, as
well as in any other {Booth v. Swezey, 8 W. Y. M., 276).
That the lender was in the habit of lending on usury is no
ground for presuming usury in a particular transaction, and, indeed,
such evidence would be improper to establish the fact of usury in
the latter transaction {Jaohson v. Bmiih, 7 Oow. It., 717).
But though usury in a particular case cannot be established by
proof of former usurious transactions between the parties, yet, if
it fall within a general usurious arrangement between them, that
may be proven {Keutgen v. Parks, 2 Scmd. R., 60). The defense

to an action on a note, was usury. There was no direct evidence
of a usurious negotiation of it to the plaintiff; but some days
afterward the borrower paid to the lender, for the use of the
money from the time of borrowing to the time of payment, inte-
rest to an amount indicating a usurious rate. The New York
Court of Appeals held that this was some evidence of an agree-
ment for a rate of interest which would produce that amount
coeval with the loan. The court declared that evidence of prior usuri-
ous loans would not alone affect the contract but connected, as that
;
evidence was, with the subsequent receipt of usurious interest for

all the time which elapsed between the loan and the receipt of that
money, it made a case to be left to the jury {Catlin v. Gwnter, 11
iT. Y. JR., 368; vide Boss v, Ack&rmom, 46 ib., 210).
The Superior Court of the city of New York, at Special Term,
decided that it is not evidence of usury that one borrowing money
PRACTICE IN' USUBT CASES. 471
inakes a gratuity to the lender over and above the interest, unless
such acts are continued for a longer period of successive borrowing

"and payments {Stover v. Coe, 2 £osw. S., 661).
The Supreme Court of the State of New York recently laid
down the doctrine that a verdict finding usury should doubtless be
based upon clear and satisfactory evidence, as, by the statutes of
this State, it involves by way of penalty the loss of the whole
debt ; but that the charitable rule giving to defendants, in favor of

life or liberty, the benefit of every reasonable doubt, should not be
extended to civU actions in which the question of usury is involved
{Porter v. Moimt, 45 Ba/rl. B., 422, 42T).
Evidence that the defendant acted as the agent of another in the
taking of usury will not excuse him from the consequences of his
act, unless it be made to appear that he disclosed his agency at the
time he made the usurious contract ( Wilkes v. Gojjfm, 3 HwwTcs'

R., 28). And it seems doubtful whether an agent who lends the
money of his principal at usurious interest can escape the penal-
ties imposed by the statute against usury by proof that he disclosed
his character as agent at the time of the transaction (
Yide Dowell
V. Yannoy, 3 Deo. M., 43 ; Commomjoealth v. Frost, 5 Mass. H.,
53).
If the contract which is upon

alleged to be usurious shows usury
its face, by the introduction of the
the usury will be established
contract, and proof that it has been performed. But where the
contract does not, by its terms, import usury, it must be proved, in
all cases, that there was some corrupt agreement, device or shift,
to cover usury {Mooch/ v. JETawkins, 25 ArJc. M., 191). And where

usury is pleaded as a defense to an action, the burden of showing
the interest excessive, and of proving it to be so, is always upon
the defendant {Sale v. Hasilton^ 21 Wis. It., 320 ; Sa/rusharger
V. Kinney, 6 Gratt. E., 287).
Where an action on a note is defended on the ground that it is
void under the usury laws of a sister State which govern the eon-
tract, the legal rate of interest in such State must be made to
appear, or else the note will be declared valid {Kenyon v. Smith,
24 Ind. B., 11).
The evidence, upon an issue of usury must substantially sustain
the averments of the pleading, or the variance between the evi-
dence and the pleading will be fatal (
Wilmot v. Mwnson, 4 Day's
R; 114). And the evidence must establish, not only the mak-
472 i"^f^ OF usnsT.
iag of a usurious contract, or the taking of a bond or other obliga-

tion to secure it, but that the usurious interest was actually received
by the lender (Thomas v. Watson, 1 Tcmey^s B., 237).
In respect to the verdict in a qui torn, action for usury, it was

held in England, at a very early day, that when an information was
brought against two, and only one was found guilty, there could be
no judgment in the case {Pag^s Case, Lan^s S., 13 Ycmx v. ;
Austin,, lb., 59). But it has been held by the American courts
that in debt qui tarn, for the forfeitures under the usury statute&, a
verdict may betaken for less than the plaintiff declares iQv{I)ozi&r
V. Bra/y 2 Hawk^ JR., 57). By an old English case, it seems that
if upon nil debit pleaded the jury find a usurious receipt of money
and did not find any loan, a new venire should be awarded, and
not a new nisiprius {Leveday's Case, 8 CoMs H., 130). But the
practice at present in usury, as well as other cases, is for the jury
to find a verdict for the plaintiff or the defendant, without quahfy-
ing terms ; so that a verdict for the plaintiff in a q^d tarn, action for
usury implies all that is necessary to constitute the cause of action.
When a party sets up usury as a defense to an action, but by
.
some mishap a default is taken against him, the court will open the
default, ordinarily, as in other 'cases. Inasmuch as the defense of
usury is regarded as unconscionable, it has sometimes been sup-
posed that no /avor will be extended to the party who attempts to

avail himself of it. But the old Supreme Court of the State of
New York, in setting aside an inquest taken at the circuit, declined,
in addition to the usual terms of ruling, to impose the condition
that the defendant should abandon the defense of usury whic(h had
been regularly interposed.
Bronson, J., in his opinion, said :
" It is, no doubt, the constant
practice, in these appeals to the equity powers of the court, to
impose such terms oh granting relief as the special circumstances

may seem to require and where a defendant has let slip the oppor-
;
tunity of pleading what has sometimes been called an unconsciona-

ble defense, as the statute of usury or of limitations, leave to plead
anew has been denied {Buck v. Fulton Bamk, 3 W&nA., 585, 587,
and cases cited, per Samage, Ch. J.).
" There may be cases where, in the exercise of a sound discretion,
we should refuse to set aside an inquest regularly taken, or to
grant any other favor to the defendant which would enable him to
set up a hard and inequitable defense. But here the plaintiff doe?
PBAGTIOE IN USURY CASES. 473
not ask to add a new plea ; his defense was interposed at the pro-
per time, and it has been lost by the mere accident that his counsel
forgot to prepare an affidavit of merits in due time. There has
been no delay. The plaintiff may still have a trial as soon as it
could have been obtained, if the cause had taken its regular course
on the calendar. If we impose a condition requiring the defense
of usury to be abandoned, we must, in effect, say that any accident
by which the plaintiff obtains a regular default will always exclude
this defense. I cannot go so far. Whatever we may think of
the policy of the statute against usury, it is our duty to enforce it
so long as it remains on the statute book. The natute of the

defense should never be taken into consideration in granting appli-
cations of this kind, except under very special circumstances "
{AUm V. Mapes, 20 Wend,, B., 633, 634).
The judgment in cases of usury are entered up, upon the verdict,
the same as in other cases, and motions for new trial and appeals
from the judgment are made and taken in them, the same as in
other eases ; a uniform practice, in these respects, governing
them all.
A verdict in such a eaise, without evidence or against evidence,

will be set aside. And the Supreme Court of Georgia has held
that a general verdict for the defendant upon the plea of usury, in
the absence of proof of any definite amount of usury paid by the
parties, is against evidence, and bad upon exceptions taken {Hol-
hmd V. Ohamhers, 22 Geo. Ji., 193).
It has been held in Alabama that to authorize a reversal of the

judgment at the defendant's instance, on account of the refusal of
the court below to impose the costs on the plaintiff, where the plea
of usury was successfully interposed, the record must show- that an
intentional reservation of usurious interest was proved ; that if the
bill of exeeptione does not purport to set out all the evidence, the
appellate court cannot infer that this proof was made from the
mere fact that the plaintiff recovered a judgment for less than the
amount of his note {Black v. HigMown, 30 Ala. B., 317). This
policy, in respect to costs, is, doubtless, peculiar to the Code of
,
Alabama aed, hence, the authority might not be regarded
; as of
general application.
In the State of Iowa it has been held that, where on appeal the
errors assigned are the rulings of the court below as to usury, the
plaintiff may remit the amount of the usury claimed, and have
60
474 I'-^^ OF USURY.
judgment ia the appellate court for the sum to which he is properly

entitled {Thompson v. Purnell, 10 Iowa R., 205).
This practice may be adopted in all cases where the statute does
not make the entire contract void on account of usury, but pro-
vides for a deduction of the excessive ipterest, or the whole interest
from the principal, ia ease usurious interest is reserved.
It was held, under the old English statute, that if the prosecutor
be nonsuited, this should not prejudice the crown {Strettoh
V, Taylor, Cro, EUz., 138). Something like this, perhaps, might
fee recognized in tiiis country. Where the statute of usury gives
an action in favor of the borrower for the forfeiture, in case he
prosecutes for the same within a specified time, and upon his fail-
ing to bring the action, then providing that an action qm tam or

the like may be brought for the forfeiture ; in such case, if the
action should be brought by the borrower and . fail, probably it
would not bar the subsequent action.
CHAPTEE XXXVI.
CSUET AS A CEIME THE OFFENSE AT COMMON LAW THE OFFENSII —
BY STATUTE WHEN THE OFFENSE IS COMPLETE THE INDICTMENT
AND EVIDENCE.
The books are not fully agreed as to whether or not usuiy is a

criminal ofEense, for which an indictment will lie at common law.
Certain it is, that it is very unusual to proceed against the lender

of money upon usury by indictment. It seems that the taking of
exorbitant, or, as it was
Jewish interest, was a misdemeanor
called,
at common law, before the enactment of prohibitory statutes, in
England. It is, indeed, laid down by some writers, that the taking
any consideration for the loan or forbearance of money was an
offense cognizable by the ecclesiastical courts, and liable to severe
spiritual censures {Ha/wTcins, h. 2, ch. 82, §4). At one period, in
England, unless the usury taken exceeded forty per cent, the sum
named as Jewish, it was expressly held that no indictment at com-
mon law could be supported. The statute 12 Car. II, ch. 13,
which fixed the rate of interest at six, and the 12 Anne, stat. 2,
ch. 16, which reduced it to five per cent, though they gave a
penalty, partly to the king and partly to the informer, both pro-
USmtT AS A CBIME. 475
liibited tlie act to be done in positive terms, and without any refer-
ence to the mode of proceeding ;and, when this is the case, any
person who disobeys the provision
is held to be guilty of an offense
for which an indictment will Sometimes this rule of the com-

lie.
morf law is re-enacted by the statute. For example, by the statutes

of New York it is declared that when the performance of any act
is prohibited by any statute, and no penalty for the violation of
such statute is imposed, either in the same section containing such

prohibition or in any other section or statute, the doing such act
shall be deemed a misdemeanor (2 B. S., 696, § 39 2 Stat, at
;
Za^ge, Y19). The general rule is,' that where a statute creates a
new offense, by prohibiting and making unlawful anything which
was lawful before ; and appoints a specific remedy against such
new offense {riot antecedently unlawful), by a _partiGular sanction
a,n.d particular method of proceeding, that particular method of
proceeding must be pursued {Castle's Case, Oro. Jac, 643). But

when the offense was antecedently punishable by a common-law
proceeding, and a, statute prescribes a particular remedy by a sum-
mary proceeding; then, either method may be pursued, and the
prosecution is at liberty to proceed either at common law or in the
method prescribed by the statute ; because there the sanction is
•cumulative, and does not exclude the common-law punishment

{Stephens v. Watson, 1 Salk., 45 ; and vide Rex v. Rohinson, 2
Bv/rr. E., 799, 803).
was held in one case in England that no indictment would lie
It
for usury, but the parties who chose to prosecute must proceed to
recover the penalties in a penal action {Queen v. Dy, 11 Mod. R.,
lit). And it was generally conceded that no criminal proceeding
could be maintained under the statute of 12 Anne for a mere
agreement to take illegal interest, in pursuance of which nothing
was carried into execution. But on the general principle just
stated, which seems very clearly laid down, an indictment would lie
under statutes similar to that of the 12 Anne, where the usurious
transaction was completed.
The opinion was entertained and expressed by very eminent
barristers in England, as late as 1814, that in a clear and palpable
case of usury a party might be indicted at common law. But it

seems now to be generally conceded that usury is illegal only as it
is made so by statute law and, hence, unless the taking of more
;
than the legal rate is forbidden by the statute, the only consequence
476 I'AW OF USURY.
of taking it must be that declared by the statute. When, however,

the statute actually forbids the taking of usury, a violation of the
statute would be regarded as a misdemeanor, unless some other
consequence is declared by the statute as the result of such violar
tion.
The some of the States contain a provision making
statutes of
usury an indictable ofEense, and prescribe the punishment of it as
such. The statute of the State of New York enacts that any per-
son who shaiU, directly or indirectly, receive any greater interest,
discount or consideration than is prescribed in the act, and in vio-
lation of the provisions of said act, shall be deemed guilty of a
misdemeanor, and, on conviction thereof, the person so offending
shall be punished by fine not exceeding $1,000, or imprisonment
not exceeding six months, or both {Lanios of 1837, ch. 430, §6; 4
8iat. at La/rge, 460).
Under this statute, the mere agreement for a usurious premium,
to be paid at a future day, does not constitute the criminal offense
of usury. The act makefi only the actual taking of usury an indictar
ble offense. But when there is an agreement to receive usurious
interest, a subsequent receipt of any portion of the usurious pre-
mium completes the misdemeanor ( Yilas v. Jones, 10 Paiges B.,
17 ; Henry v, Bcmk of SaMna, 5 HilVs R., 523).
This statute of New York has not often been enforced against
the usurer criminally, and yet occasionally a person has been
indicted and convicted under the statute. A case of the kind was
recently passed upon by the Court of Appeals of the State. One
Burdick, the owner of a farm which was subject to a mortgage
held by Sumner, the defendant, being in arrears in his payment
of principal, applied to the defendant on the 30th of November,
1857, for an extension of time. After some negotiation between
the parties, Burdick signed an agreement in these words :
" If I
do not pay N. Sumner the $800 I owe him by December 5th,
1857, 1 will give him sixteen dollars extra. November 30th, 1857."
The defendant was indicted for taking usury, and upon the trial
this agreement was given in evidence, at which time there was a
receipt for the sixteen dollars indorsed upon it in the handwriting
of the defendant. Burdick was examined and cross-examined as
to the circumstances at considerable length. His testimony was
somewhat confused, but he was clear as to his having paid the six-
teen dollars and as to the time of paying the principal and law-
;
;
USURY AS A CBIME. 477

ful interest, and upon these points there was no contradiction
fclthough it was not clear at what precise time the sixteen dollars
were paid. The only other witness sworn on the trial was a brother
of Burdick, who testified to an admission of the defendant that
Burdiek had paid him two per cent extra beside the interest.
On the testimony being closed the defendant's counsel moved

that the court direct a verdict for the defendant, which was denied
and the counsel excepted. The counsel for the defendant then
requested the court to charge the jury, that if the sixteen dollars
extra were paid to the defendant by Burdick, " on the happening of
any contingency over which the said Burdick had a control, it was
not usury." The court declined so to charge, and the defendant's
counsel again excepted. The defendant was convicted, and the
court sentenced him to pay a fine of $100. The judgment was
affirmed by the Supreme Court, and the case was then taken to
the Court of Appeals by writ of error. The latter court reversed
the judgment on the ground that the case was not properly sub-
mitted to the jury in the court below. was admitted, however,
It
that the decision were no errors in the
of the jury, if there
instructions of the court, would bind the parties. But it was held
that the jury should have been charged as requested, " that if the
sixteen dollars was to be paid by Burdick on the happening of
any contingency over which the said Burdick had control, it was
not usury" {Sumner v. The People, 29 N. Y. E., 337). "
Usury, as a crime, does not consist in the intent to take but in

the actual taking of more than the legal rate of interest. It is
and in England, that until the
well settled, both in this country
lender has received more than principal and interest, bonus
included, for the sum actually advanced, the offense of usury is
not consummated. It is not committed by payment of a premium
less in amount than the legal interest ; nor by the agreement to
take more than the legal rate. Till more than the legal interest
on the loan is taken by the lender, the offense is not complete.
The Supreme Court of Tennessee has recently held that the
gist of the offense of usury, under the laws of that State, is the
reception of the money. That the mere contract or agreement
for the payment of more than the legal rate of interest is not, of
itself, while unexecuted, the subject-matter of a criminal prosecu-

tion. The court, however, decided that if the parties, in order to
evade the law, go into another State and make the usurious con-
478 LAW OF USURY.
tract, and the usurious interest is afterward received in Tennessee,

a crinainal prosecution will lie {Mv/yph/y v. State, 3 Hea^s R.^
249).
The Supreme Court of the State of Indiana has held that
usury, as an indictable offense under the statute then in force,, con-
sisted in the taking or receiving unlavûl interest, and not in

merely contracting for such interest {Ll/oingston v. Indicmapolw
Insv/rance Compcmy, 6 Blackf. R., 134).
The Supreme Court of Pennsylvania has held that the offense
of usury is complete when more than legal interest is received
" for the loan or use of money," or " for the forbearance " of it,
on any bond or contract (Agnew v. McElha/n, 18 Pmm. R., 484,

487).
The doctrine of these cases, as to what constitutes the offense
of usury, is uniformly recognized as correct, and perhaps no.
authority can be found which holds to the contrary. A contract

may be avoided by the corrupt agreement to take or receive of
the borrower more than legal interest ; while an indictment wiB
not lie until the usurious interest has been actually received.
The indictment for the offense of usury must contain all the
requisites of a declaration or complaint in a qui tarn, action for
usury and the evidence to sustain the indictment must be clear
;
and sufficient to establish each and every material averment,

beyond'a'reafionabl6 or rational doubt, or the prosecution must
fail.
The Law of Usury, Pawns
or Pledges, and
Maritime Loans.
I'AIiT II.
OF THE LAW OF PAWNS OR PLEDGES.

;
CHAPTER XXXVII.
DEFEjrriON OF A PLEDGE OK PAWN HISTORY OF THE CONTEACT
OF PLEDGING OE PAWNING PEBSONAL PEOPEETT AS A SECTJEITT
FOE DEBT.
Theeb are few subjects connected with the commerce of this

couutry which are of more general importance and less generally
understood, or less adequately ascertained, than the law regulating
pledges or pawns. There is hardly a business man in any com-
munity who does not, every month and almost every day, contract
the obligations or acquire the rights of a recevuer or a giAier in
pledge, while he, at the same time, may be really quite ignorant of
the nature or extent of the duties which bind him, and has no just
idea of the rights which he thereby enjoys. It has been justly
remarked that contracts of bailment, including those of pledges or
pawns, are among the principal
springs and wheels of civil society
and that " want of mutual confidence or any other cause were to
if a
weaken them or obstruct their motion, the whole machine would
instantly be disordered or broken to pieces. Preserve them, and
various accidents may still deprive men of happiness but destroy ;
them, and the whole species must infallibly be miserable " {Jones'
on Bailment, 2). This being so, it is obvious that so important a
branch of jurisprudence should be perfectly well settled and rear
sonably well understood.
A mortgage of personal property is often confounded with a
pledge or pawn, when, in the common law, there is an essential
difierence. A
pledge or pawn is the bailment of goods to a cred-
itor as some debt or engagement. This is the definition
security for
of the word adopted by Story and other writers upon the subject.
In the civil law, that was properly called apignus (pledge), where
the thing was delivered to a creditor. If it remained with the
debtor, though pledged as security, it was called a Kypoiheca

(liypothecation). A mortgage is an absolute pledge where the
legal property passes, with a condition of defeasance. pledge or A
pawn of goods is a deposit of them as security, and a delivery is
essential. The general property does not pass 'as it does in the
case of a mortgage.
61
482 LAW OF PLEOQE8.
Pledges for debt are of the highest antiquity. There is the best
of reasons for believing that the contract originated many centu-
ries before the invention of a circulating medium, and that the
pawnor and pawnee was constituted between persons
relation of
removed, by only a few generations, from our primeval ancestors
Adam and Eve.
A
late English writer upon the Contract of Pawn, has taken
pains to compile, from the most authentic sources, a history of the
practice of depositing property as a security for goods or money
lent and from his statement it appears quite certain that the rela-
;
tion ofpawnor and pawnee actually existed about 500 years before
the children of Israel became a separate nation. The earliest
known instance of the contract of pawn is recorded in a passage
in the book of Genesis, wherein it appears that Judah, the son of
Jacob, was the pawnor, and Tamar, his daughter-in-law, was the
pawnee. The property pledged was a signet, and bracelets, and staff,
and the pledge was made to secure the lending of a kid to the
pledgee {Genesis xxxviii, 17, 18). From the manner the story is
told, it is manifest that the custom of pawnilng was both common
and well established in the patriarchal age, and it would seem that
the subject of pledges was regulated by the laws of Moses. " If
thou at all take thy neighbor's raiment to pledge, thou shalt deliver
it to him by that the sun goeth down." The reason for the injunc-
tion is given in the following verse :
" For that is his covering
only, it is his raiment for his skin, wherein shall he sleep. And
it shall come to pass, when he crieth unto me that I will hear, for
I am gracious " {Exodus xxii, 26, 27). The same tender regard
of the Mosaic laws, for the interest of the pledgor, is also shown
in the prohibition to take the upper or nether millstone in pawn.
" No man shall take the nether or the upper millstone to pledge, for
he taketh a man's life to pledge " {Deut. xxiv, 6). Handmills were
then generally used in every family for grinding their corn and ;
men would be deprived of the means of preparing their necessary

food if their millstones were taken from them. The same spirit
is manifest in the prohibition for one to enter into his brother's
house in quest of the pledge on which to lend his money, for " the
man to whom thou dost lend shall bring out the pledge abroad
unto them" {Deut. xxvi, 10, 11). That is to say, the Israelites
were permitted to take a pledge of their brothers to secure the loan
was something which the borrower could
of money, provided it
;
MISTORT OF PLEDGES. 483
conveniently part with, and which he willingly proposed. The

same reason holds good against money in pledge, or distraining for
debt any of those instruments of labor by, which men are accus-
tomed to earn their living, or for any of those articles actually
necessary for the present comfort and support of the debtor and
his family.
So, also, in the same spirit, by the Mosaic institutions, if the
borrower, in his necessity, brought out and tendered in security for
the loan what he could not well spare, the lender was commanded
for conscience toward Grod to restore it by sunset. " And if the

man be poor, thou shalt not sleep with his pledge ; in any case
thou shalt deliver him the pledge again when the sun goeth down,
,that he may sleep in his own raiment and bless thee and it shall ;
be righteousness unto thee before the Lord thy God" {Deut.xxiv,

12, 13). And in the same spirit the lender was forbidden to " take
a widow's raiment to pledge " (Deut. xxiv, lY).
The subject of pledges, as security for debt, is also referred to
and rules laid down or opinions expressed in regard to them in
Job, in the Proverbs and in Ezekiel, all going to show that the
custom of taking property in pledge was prevalent among the
Jews from the very earliest periods, and that the matter was regu-
lated by law, whi(^ was well understood and recognized by them.
In China, pawnbrokers are .very numerous at the present day.
They are kept under and no one must act as a
strict regulations,
pawnbroker without a license, under pain of severe punishment.

It seems that three years is the Usual period during which a pledge
may be redeemed, and three per cent per month is the highest legal
rate of interest. But in winter the monthly interest on pledges
of wearing apparel is restricted to two per cent, " that the poor
may be able the more easily to redeem" (^ Davis' Gfiina, 418).

And as most Chinese institutions are but stereotyped copies of
originals many hundred years old, it is very probable that those
regulations applied to the Chinese pawnbrokers of hundreds and
perhaps thousands of years ago, as completely as they now do to
their successors of the present day.
Sir William Jones says that " pledges were used in very early
times by the roving Arabs, one of whom finely remarks '
that the
life of man is no more than z, pledge in the hands of destiny' "
(/owes on Bailment, 84). This sentiment is peculiarly oriental
it is naturally suggested by the hazardous vicissitudes which attend
484 LAW OF PLEDGES.
the pursuits of the wandering Arab. Under its ?'e%iow«influence

the belieyersia Mohammed have fiercely encountered the dangers of
battle or have supinely fallen by the ravages of the plague. It
has tolerated the horrors of a bloody and degradingidespotism, and
it supplies the "ca/rpeddem" in the voluptuous effusions of the east-
ern poets.
The distinction heiweeux pZedgihg^ when possession is transferred
to the creditor,and hypothecaUon, when it remains with tie debtor,
was originally Attic ; but scarce any part of the Athenian laws on
this subject can be gleaned from the ancient orators, except what
relates to bottomry in five speeches of Demosthenes. So says Sir
William Jones, in his essay on bailments before referred to.
In respect to the Turkish law of pledges, Sir William Jones
mentions a singular case from a curious manuscript which he dis-
covered at Cambridge, which contained a collection of queries in
Turkish, together with the decision of the Motti at Constanti-
nople. Sir William Jones says " It is commonly imagined that
:
the TurTcs have a translation in their own language of the GtveeU

code, from whichthey have supplied the defects of their Ta/rta/nam,
and Arabicm jurisprudence but I have not met with a translation,
;
although I admit the conjecture to be highly probable, and am

persuaded that A'eir numerous treatises on Mahomedam, law are
worthy, on many accounts, of an attentive examination. The case
was this Zaid had left with Amru divers goods in pledge for a
:
'
certain sum of money, and some ruffians, having entered the house
of Amru, took away his own goods, together with those pawned
by Zaid.'' Now, we must necessarily suppose that the creditor had,
by his own fault, given occasion to this robbery otherwise we may
;
boldly pronounce that the Turks are wholly unacquainted with the
imperial laws of Byza/ntrnm, and that their own rules are totally
repugnant to natural justice ; for the party proceeds to ask ' whether,
svnce the debt heoame extinct hy the loss of the pledge, and since the
goods pawned exceeded in value the amount of the debt, Zaid
could legally demand the balance of Amru y' to which question

the great law-oflicers of the Othman court answered, with the
brevity usual on such occasions, Olmiaz, it camwt he. This custom,
we confess, of preparing cases, both. of law and conscience, under
feigned ndimos, to the supreme judge, whose answers are considered
as solemn decrees, is admirably calculated to prevent partiahty, and
tp save the charges of litigation" {Jones on Bailrmnt, 85, 86).
HISTORY OF PLEOaES. 485
The Hindoos have always, from their earliest history, recognized

pledges, and have had laws regulating the rights of pledgor and
pledgee. By the present laws of the Hindoo nation, a pawnee or

other depositary, who undertakes to keep goods, must preserve
them with care and attention hut he is not bound to restore the
;
value of them they are spoiled by unforeseen accident, or burned,

if
or stolen, unless he conceal a part of them that .has been saved ; or

unless his own effects be secured ; or unless the accident happen
after his refusal to redeliver the goods on demand made by the
. while the depositary, against the nature of the trust,
depositor, or
presumes to make use of them. In other words, the " pledgee is

made answerable for frcmd, or for such negligence as approaches
to it " (Gentoo Lcms, ch. 4). The words of this part of the Bra-
minical institutions are solemn and remarkable. They prove that ,
the oriental notions on the subject of hospitality to persons are

extended with scrupulous consistency to the deposit of goods. " If
a person should make use of any property in trusted to him, or it
be spoiled for want of his care and attention, then whatever crime
it is for a woman to abuse her husband, or for a man to misuse his
friend, imputed to him, and the
the same degree of guilt shall be
valueof the trust must be made good" {Gentoo Loms, ch.4:,p. 120).
In view of the Persian and Arabian laws upon the subject of pledges
and other bailments. Sir William Jones says " All these provis-
:
ions are consonant to the principles established in this essay and ;
I cannot help thinking that a clear and concise treatise, written in

the Persian or Arabic language, on the law of contracts, and
reviewing the general conformity between the Asiatic and Euro-
pean systems, would contribute, as much as any regulation what-
ever, to bring our English law into good odor among those whose
fate it is to be under our dominion, and whose happiness ought to
be a serious and continued object of our care " {Jones on Bail-

ment, 124).
The ancient Eomans were very explicit in their laws regulating
the rightsand duties of pledgor and pledgee and the principles ;
of their laws upon the subject have been largely incorporated into
the laws of England and America upon the same subject:
But the history of pledges or pawns in England contains more

of general interest than that of any other nation, ancient or mod-
^
ern. It seems that the Jews, who first settled in England about
the year 750 after Christ, were the first professed pawnbrokers, as
;
486 LAW OF PLEDGES.
well as the first money-lenders, in that country. They carried on

both trades until their expulsion by Edward I. The principal seat of
this order in London, and in the kingdom, was in Old Jewry. Tlie
interest which they charged varied from about forty-five to sixty-
five per cent per annum and in some instances they exacted even
;
more than the latter figure. It is recorded that in 1264, the rab-
ble attacked and destroyed the synagogue, because a Jew had
endeavored to exact from a Christian man more than the then
legal rate of interest of twopence per cent for a debt of twenty
pounds the latter owed him. The populace took a bloody revenge
for the attempt at extortion. A riot ensued, in which YOO Jews
were killed by the mob. A few years later the Jews were for-
bidden to take interest at all, on pain of death ; and as the hatred
of Jews grew too intense, both in governors and governed, to
allow the unfortunate Israelites to remain in tlie country, even,

when continually subjected to pillage and persecution, they were
ultimately expelled by Edward I, in 1290. After their expulsion,
the trade of pawnbroking in Eijgland fell almost entirely into
the hands of the Lombard merchants, who, it is certain, had pre-
viously adopted the practice of taking pledges for loans, both of

large and small sums of money, by them Eichard I was
since
accommodated with a considerable amount of money on loan and ;
his successor's written guarantee to pay the debt is supposed to be

the earliest known instance of a letter of credit, afterward so
much in use as a bill of exchange {Hallam^s Middle Ages, bth
ediUon, vol. 3, p. 405).

The Lombards continued to thrive by their pawnbroking and
money-lending, though taking interest was not made lawful till
1546, when the legal rate was fixed at ten per cent, which was
afterward changed from time to time, as shown in a previous
chapter {ante, ch. 2).
The earliest legislative notice of pawnbrokers, as such, in Eng-
land, is not regarded as very flattering. It is contained in the

statute 1 Jac. I, ch. preamble of which" recites, that
21, the
" forasmuch as of long and ancient tyme, by divers hundred yeeres,
there have been used within the Citie of London, and the Liberties
thereof, certain freemen of the Citie, to be selected out of the
Companies and Mysteries, whereof they are free and members
who were to be recommended to the Lord Mayor and Aldermen,
ae " persons meete for to be broker or brokers
" and who were ;
STSTOBT OF PLBDGMS. 487
•
to be admitted on taking " their corpdral oaths to use and demeane

themselves uprightlie and faithfullie between merchant Englishe
and merchant strangers and tradesmen " ;
and those brokers
" were, of very ancient tyme, used to buy and sell garments,
household stuffe, or to take pawnes and billes of sale of garments
and apparel,' and all things that come to hand, for money laide
out and lent upon usurie ; as now of late yeeres hathe, and is
used by a number of citizens assuminge unto themselves the name

of brokers and brokerage, as though the same were honeste and
a lawfaU trade, misterie, or occupation, tearminge and naminge

themselves brokers, whereas in truth they are not, abusinge the
true and honeste ancient name and trade of broker and brokerage ;
and forasmuch as many citizens freemen of the citie, being men

,
of manuall occupation, * * * have lefte and given over, and

daylie doe have and give over, theire handie and manuall occupa-
tions ;and have and daylie doe, set up a trade of buyinge and
selling, and taking to pawne, of all kinde of worne apparel,
whether it be old or little the worse for wearinge household ;
stuffe and goods of whatever kind soever the same be of, findinge
therebie that the same is a more idle and easier .kind of trade of
livinge, and that there riseth and groweth to them a more readie,
more greate, more profitable advantage and gaine, than by theire

former manuall labours and trades did or coulde bringe them."
The statute, after enumerating divers evils which were considered
hkely to flow from this new trade, goes on, in the fifth section, to
enact that no sale or pawn of any stolen goods, to any pawn-
broker in London, "Westminster or Southwark, shall alter the
property therein, and that pawnbrokers refusing 'to produce the
goods to the owner from whom stolen shall forfeit double value.
This law is understood to be still in force, though later statutes
have rendered it less important than formerly. The first attempt
at a statutory definition of the term pawnbroker is to be found
in the act of 1785, imposing a stamp duty on pawnbrokers'
hcenses. The fifth section of the act provides " that all persons
who by way of pawn, pledge or exchange, of
shall receive or take,
or from any person or persons whomsoever, any goods or chattels
for the repayment of money lent thereon, shall respectively be
deemed pawnbrokers within the intent and meaning of this act,

and shall take out a license for the same accordingly (25 Geo. Ill,
ch. 48, § 5).
488 LAW OF PLEDGES.
It
In accordance with the popular fallacy at that day, that " five
per cent was the natural rate of interest," the sixth section of the
act "provided, always, that nothing in this act contained shall
extend, or be construed to extend, to any person or persons who
shall lend money upon pawn or pledge, at or under the rate of
five pounds per centum per annum interest, without taking any
farther or greater profit for the loan or forbearance of such money
lent on any pretense whatever." After the passage of the last
mentioned act, several temporary statutes were enacted for the
regulation of the pawnbroking business in England, of more or
less importance but the law now in force in that kingdom has
;
been in force since the year 1800. The efiect of the English
statutes has been often declared by the courts, and numerous
decisions are repqrte 1 declaring the law in respect to pledges and
pawnbrokers, some of which are applicable to the subject in this
Iountry, and will be referred to, and fully examined in subsequent
pages of this work.
In France and many other countries, pawnbroking is conducted
exclusively by public institutions as a quMsi benevolent order,
known as Monts de The first of these was established at
Piete.
Padua, in the present kingdom of Italy, in the fifteenth century,
to supply the poor with money at a moderate rate of interest, and
to control the usurious practice of the Jews, who were then the
great money-lenders of Europe. At a later period these Monts de
Piete, or pawnbrokers' offices, were introduced into many of the
continental States, and some of them still exist at Paris, Madrid,
Brussels, Ghent, Antwerp, etc. ( Tide Brand's Diet, of Science
<md Art, art. Monts de Piete). The practice of these establish-

ments has not always corresponded with their professions, but " on
the whole," says Mr. McCuUoch, " they have been of essential ser-
vice to the poor" {MgCuUocKs Commercial Diet., a/rt. Pa/wn-
hrohers). They were suggested in a sermon preached before Pope
Pius II, in consequence of various abuses which had crept into the
practice of pawnbroking in the Papal States, and were established
between 1464 and 1471. Attempts have been made to introduce
them into England at various times, but without success. The
Bank of England, by virtue of its original charter, has the power
of taking pawns as security for advances ; and it is said that there
is among its archives some record of a golden utensil that was once
taken as a pledge for an advance made to a lady of title. Any

;
HISTORY OF FLBDGES. 489
person, howevei;, who has had occasion to do business with the

national banking establishment in Threadneedle street, London,
need not be informed that the Bank of England would now con-
sider the business of ordinary pawnbroking far beneath its notice
and yet, even now, it may be truly said that not only the Bank of
England but every other bank in the world is still a pawnbroking
establishment, the only difference being that the pledges there
taken are bills and such like documents, instead of ordinary chattels.
As before remarked, all of the English attempts to establish

these Monts de Piete, or Mountains of Piety, have failed of success
and yet these institutions have become quite popular in many parts
of the continent of Europe. There is one in Paris, which was
established by royal ordinance in 1777, and, after being destroyed
by the revolution, was again opened in 1797. In 1804 it obtained
a monopoly of pawnbroking in the capital. This establishment
grants loans on deposits of such goods as can be preserved, to the
amount of two-thirds the estimated value of all the goods, other
than gold and silver, on which four-fifths of the value may be
advanced. No loan is granted for less than three francs. Advan-
ces are made for a year, but the borrower has the option of renew-
ing the engagement. Interest is charged at the rate of nine per
cent per annum, with half per cent as a valuation fee. The Mont
has generally in deposit from 600,000 to 650,000 articles, worth
from 12,000,000 to 13,000,000 francs. The expense of manage-
ment amounts to from sixty to sixty-five centimes per article, so
that a loan of three francsnever defrays the expense it occasions,
and the profits are wholly drawn from those that exceed five francs
{MeCulloGh-s Commercial Diet., art. Panonbrohers). And perhaps
this accords with the experience of pawnbrokers in all places.
Doubtless there is generally a loss on articles of small value, unless
they are redeemed.
The sign of the pawnbroker in England is three golden balls,
which, it is were the arms of the Lombard merchants, who

said,
first introduced the practice of pawnbroking in that kingdom.
The popular explanation, of the three golden balls is, that there
aretwo chances to one against the redemption of the things pawned.
The Lombards assumed the emblem which had been applied to St.
Nicholas, as their charitable predecessor in the same line ; and
Mrs. Jamieson, the accomplished writer, has given another expla-
uation of the pawnbroker's sign, which is of sxifficient interest to
62
490 t,A W Of PLEDGES.
transcribe. The good saint, St. Nicholas, was bishpp of Myra, and
Mrs. Janiiesoii says :
" Now in that city there dwelt a certain noble-
man who had three daughters, and from being very rich he became
poor, so poor that there remained no means of obtaining food for
his daughters but by sacrificing tbem to an infamous life ; and
oftentimes it ' came mind to tell them so, but shame and
into his
- sorrow held him dumb. Meantime the maidens wept continually,
not knowing what to do, and not having bread to eat, and their,
father became more and more desperate. When Nicholas heard
of this, he thought it a sbame that such a thing should happen in
a Christian land ; therefore, one night, when the maidens were
asleep, and their father alone satwatching and weeping, he took a
handful of gold, and, tying it up in a handkerchief, he repaired to
the dwelling of the poor man. He considered how he might
bestow it without making himself known, and while he stood
irresolute, themoon, coming from behind a cloud, showed him a
window open so he threw it in, and it feU at the feet of the
;
father, who, when he found it, returned thanks, and with it he

portioned his eldest daughter. The second time Nicholas provided
a similar sum, and again he threw it in by night, and with it the
nobleman married his second daughter. But he greatly desired to

know who it was that came to his aid therefore he determined to
;
watch, and, when the good saint came for the third time, and pre-
pared to throw in the third purse, he was discovered, for the noble-
man seized him by the skirt of his robe, and flung himself at his
feet, saying, Oh, Nicholas servant of God, why seek to hide
'
!
thyself ? and he kissed his feet and his hands.

' But Nicholas
made him promise that he would tell no man " {Sacred and Le-
gendary Art, vol. 2, ^d ed., p. 452).
In the engraving which accompanies the story of Mrs. Jamieson,
the saint is represented standing on tiptoe, and about to throw a
ball-shaped purse into the windows of the house. The nobleman
is seen through an open doorway, sitting sorrowfully in the nearest
room, while his three daughters are sleeping in a chamber beyond.

The three purses of gold, or as they are more commonly figured,
the three golden balls, disposed in exact pawnbroker 'fashion, are
to this day in England, the recognized and special emblem of the
charitable Nicholas.
Mr. Turner, in his work on the Contract of Pawn, refers to this
account of Mrs. Jamieson ; but thinks that a much more common-

;
HISTORY OF PLEDGES. 491
jiliice explanation of the pawnbroker's sign might be given by sup-

posing that the three balls are the representatives of the article in
—
which the pawnbroker deals money. He says " In the case of :
tuost of tlie London trading companies, it will be found that their

armorial bearings are charged with three of those objects which
are the staple of that company's manufacture. Thus the gold-
smiths (in addition to the leopards' heads) have three cups or
chalices; the saddlers, their saddle-trees; the stationers, their books
the needlemakers, their needles, etc. In all probability the Lom-

bards merely adopted the emblems of and selected
their traffic,
tliree ' Byzants,' a gold coin of great purity, current during the
middle ages. 'Byzant' also is the world's term for a circle of

gold, and thus the device would really be three golden coins on a
field azure, a form in which they are commonly presented to the
eye even now, whenever the pawnbroker has to depict his signs
upon a flat surface, such as a window blind. As the use of flat
sign-boards passed out of fashion, the original idea was preserved
by the use of golden spheres, which had the advantage of being
equally visible from whatever point of view the customer's eye
might light upon them. We do not pretend to decide between
these conflicting theories ; our readers must make their election
between piety and pelf, between alms-giving by a medieval
bishop and money-lending by a modern broker. Still, witli tire
liveliest appreciation of the excellence of the good saint's notions,

we greatly doubt whether public interest or private morality would
be secured by a general imitation of his example. His memory,
however, was highly venerated, especially by the poor " {Turner's
Contract of Pawn., 21, 22).
Mrs. Jamieson says of the venerated saint :
" While knighthood
had its St. George, serfhood had its St. Nicholas. He was
emphatically the saint of the people ; the bourgeois saint, invoked
by the powerful citizen, by the laborer who toiled for his daily
bread, by the merchant who traded from shore to shore, by the
mariner struggling with the stormy ocean. He was the protector
of the weak against the strong, of the poor against the rich, of the
captive, the prisoner, the slave. No saint in the calendar has so
many churches, chapels and him. In England,
altars dedicated to
I suppose, there is hardly a town without one church at least bear-
ing his name."
This is the man who is reported to be the founder of the order ol
492 i-^TT OF PLEDGES.
pawnbrokers, or who first established the business of pawnbroting.

Mr. Turner thinks that he has no reason to be ashamed of his suc-
cessors. He says " A pawnbroker of to-day may look very pro-
:
saic by the side of a medieval saint, but no honest member of the

craft is a greater public benefactor than the bishop of Myra. He
lives to supply a want continually felt in civilized societies. His
calling will always exist, if not under legal recognition, then
in spite of legal prohibition. If it is true that to some extent it
encourages habits of intemperance, it is also true that it continually

relieves distress. man, on a small scale, to do in
It enables a poor
an hour of what the millionaire does at a commercial
difficulty
crisis —
to raise the means of meeting a temporary purpose, by get-
ting an advance on some portion of his property, with which he
would not, under ordinary circumstances, be willing to part. As
"the business is, in England, left in the hands of individuals, the
pawnee is naturally more anxious to make money by accommodat-
ing the pawnor than he would be if, as in France and elsewhere,
the business was confined to a few establishments, conducted by
government officials, with no special motive to please anybody but
those above them " {Tv/rn&r's Contract of Pcmn, 22, 23).
In respect to the history of pledges or pawns in the American
States, there is but little of interest recorded or to be found in the
books upon the subject. The practice of pledging personal pro-
perty for the security of claims dates back to the earliest settle-
ments in the country, and the regular business of pawnbroking has
been carried on nearly as long sometimes without express sanc-
;
tion of statute, except as it was regulated by the charters of cities,

but generally controlled by rules enforced according to the com-
mon law. The first general law in respect to pawnbroking in the
State of New York was that which was incorporated into the
Eevised Statutes of 1830, and is the statute now in force. The

revisers, in their notes in relation to this statute, say :
" New. It
seems necessary either to regulate the business of pawnbrokers, or
to forbid its exercise. In New York, the municipal authority has

the power of licensing and controlling them. Whenever that con-
trol cannot be exercised, it cannot be necessary that the business ^

should be carried on. It is more dangerous than any private and
single loans at usurious interest, because it relates to articles of
small value, and thus tempts apprentices and minors to embezzle
property " (3 B. S., M ed., 562).
;
WHAT IS A PLBD'GE. 493
Most of the States at the present day ha,ve statutes regulating

the business ofpawnbroking, and some of them have enactments
in regard to ordinary pledges, all which will be noted in their
appropriate place.
Considerable of the statements contained in this chapter, giving
the historical traces of pledges or pawns and pawnbroking, is com-
piled from Mr. Turner's English work upon the Contract of Pawn;
and the whole summary is made up from data which may be con-
sidered authentic, and may be relied on as, in the main, accurate
or at least substantially correct. But people are in general more
interested to understand the rights and duties pertaining to pledges
or pawns, than the history of the practice in the past. Therefore,
to define these rights, and indicate the extent of these liabilities,
will be the object of the following chapters.
CHAPTEK XXXVIII.
THE CONTRACT OF PAWNING OE PLEDGING — WHAT IB A PAWN OE
PLEDGE — WHAT MAT AND WHAT MAT NOT SE PAWNED OB
PLEDGED — GBNEEAL EULES UPON THE SUBJECT.
A siMPLB definition of a pledge or pawn was given in the pre-
ceding chapter, but the contract of pledging or pawning should be
more accurately and elaborately ejcplained than it was in the few
words there applied to the subject.
As was before intimated, in the Roman law, the contract of
pledging or pawning is jdgnus ; and in that law the term
called
was applied to mere personal property and movables, as opposed
to land, and things incorporeal. Pothier says the pawn or pledge
is by which a debtor gives his creditor a thing to detain
a contract,
as security for his debt (creamer), which the creditor is bound to
return when the debt is paid (De JVantissement, art.jprelim., note 2).
Judge Blackstone seems to have had a similar understanding of
L the contract, for he says " If a pawnbroker receives plate or
:
jewels, as a pledge or security for the repayment of money lent

thereon at a day certain, he has them upon an express contract or
condition to restore them, if the pledgee performs his part by
redeeming them in due time " (2 Black. Com., 452).
494 LAW OF PLEDGES.
Chancellor Kent, in his learned Commentaries, adopting the

words of Sir William Jones, says " It is a bailment or delivery
:
of goods by a debtor to his creditor, to be kept till the debt be

discharged " (2 Kent's Com., 9th ed., 771). And Judge Bouvier,
in his Institutes, says :
" Apawn or pledge (for the term is used '
as synonymous^ is a eontraet by which the debtor, or some other

person for him, delivers to his creditor, as a surety for his claim,
pergonal property to be detained by him, which the creditor obli-
gates himself to return to the debtor after his claim shall have
been satisfied. The thing delivered by this contract to the credi-
tor is also called a pawn or pledge, in Latin, pignus " (1 Bov/v.
Inst, 419, 242).
In the prevailing opinion in a recent case decided by the
Supreme Court of the State of New York, it is said " A pledge :
consists of a delivery of goods by a debtor to his creditor, to be

held until the debt or obligation is discharged, and then to be
redelivered to the pledgor ; the title not being changed during the
continuance of the pledge," and reference is made to Story on
Bailments for authority for the definition {Parshall v. Egga/rt, 52
Barh. B,., 367, 374). And in the prevailing opinion given in a

case recently decided by the New York Court of Appeals, it is
said :
" A
pledge is a delivery of goods by a debtor to his creditor,
to be kept till the debt is discharged; or again,, it is a bailment of
personal property as security for some debt or engagement," and
the judge refers to both Kent and Story for his authority (Marh-
ham Jaudon, 41 N. Y. R., 235, 241).
V.
Substantially in harmony with this is the common-law doctrine,

in which a pawn or pledge is considered to be a bailment of per-
sonal property as a security for some debt or engagement. Lord
Holt, in giving judgment in a case before him, mentions pawn as
the fourth class of bailment, and says: " It is when goods or cliat-
tels are delivered to another as a pawn, to be security for money

borrowed of him by the bailor, and this is called in Latin vadium,
and in English Jtpawn or pledge" (Coggs v. Bernard, Ld. Raym.
R., 909). And a learned English text writer upon the law of con-
tracts expresses the same idea, though more precisely, when he
says :
" The contract of pledge is a bailment or delivery of goods
and chattels by one man to another, to be holden as a security for
thepayment of a debt or the performance of some engagement,
and upon the express or implied understanding that the thing
;
;
WSAT IS A PLEDGE. 495
depositedis to be restored to the owner as soon as the debt is dis-
charged or the enjoyment has been forfeited " {Addison on Con-

tracts, Uh ed., 298). These definitions do not at all conflict, but
are substantially alike ; and they all proceed on the assumption
that the goods were not in the possession of the creditor before the
act of pawning took place ; and therefore they do not meet the case
of an assignment of the debtor's goods, previously in the creditor's
keeping for some other purpose ; inwhich event, the relation of
pawnor and pawnee is constituted by the mere agreement of the
parties. The lexicographers, as well as the lawyers, substantially
agree in their definition of a pledge or pawn. Johnson defines it
as something given to pledge as security for money borrowed or

promise made, and says that the verb to pawn is seldom used but
of pledges given for money. Richardson's definition recognizes its
more extensive application, which is, "to give or deliver; to place
in the hands of; to deposit anything as gage, warranty or security
to plight or pledge ; to take." "Webster, the standard American

lexicographer, defines a pawn
"something given or deposited
as
as security for the payment of money borrowed a pledge for the ;
fuliillment of a prom^pe ;" and he defines a pledge to be " some-
thing put in pawn that which is deposited with another as secu-

;
rity a pawn."
; Worcester, also excellent authority, defines a pawn
as "something given as security for repayment of money bor-
rowed, or for the fulfillment of a promise a pledge a deposit ;" and; ;
his definition of a pledge is similar :

" something put in pawn
something given or deposited as security for the repayment of
money or the fulfillment of a promise a deposit a pawn a gage."
; ; ;
The "Nêw American Cyclopaedia" b&js pi pcuwn: "A word

undoubtedly derived from the Latin pignus, and meaning any
article ofpersonal property given in pledge or by way of security
for the payment of a debt or the discharge of an obligation. The
word is also used as a verb, and signifies to give such article in
pawn or pledge." This work has nothing under the word pledge,
doubtless for the reason that the words pawn a.ud pledge in law are
synonymous. The " English Cyclopaedia," under this head, states
that " pawning diflers from other ways of lending and borrowing
money in this: that the goods are delivered to the lender as

security." As the result of the various definitions given, Mr.
Turner very justly remarks " "We may say that the contract of
:
pawn is one by which a party, either by delivery or by some act

;
496 LAW OF PZEDGES.

equivalent thereto, bails personal property (other than chattels
used) to the other on a security for the payment of a debt, the ful-
an obligation, or the discharge of an undertaking"
fillment of
(Twn&r's Contract of Pa/wn, 29).
A pledge or pawn is a bailment, for the reason that the essence
of the transaction is the delivery of the thing pawned or pledged
by the pawnor to the pawnee. Unless there be a delvo&ry of the
goods, there can be no valid pledge. The delivery must be actual
and continued, except in one or two classes of cases, where con-
structive delivery is tolerated. But while the terms of a pledge
require that there should be a delivery of the article, it is not
necessary that there be an actual manual delivery. It is sufficient
if there be any of those circumstances which in construction of

law are deemed sufficient to pass the possession of the property.
Thus, goods at sea may be passed in pledge by a transfer of
muniments of title, or goods in a warehouse by the delivery of the
key. " So if the pledgee has the thing already in possession, as by
a deposit or loan, the very contract transfers to him, by operation
of law, a virtual possession thereof, as a pledge, the moment the
contract completed" {Story on, Bail., § 297).
is
Possessionmay also be temporarily parted with, as between

pledgor and pledgee, without destroying this relation as where ;
so delivered for and with an agreement for redelivering ; or where

it is delivered to the owner, as special bailee or agent {Story on
BaM., § 299). But more of this' when the manner of making a
pledge or pawn shall be considered.
The debtor, or person pawning or pledging, is called the pawnor
or pledgor ; the creditor, or he that receives the pawn or pledge,
is called the pawnee or pledgee. Any person competent to con-
tract may be a pawnor or pledgor, or a pawnee or pledgee but ;
there is a class of persons whose business it is to receive goods on

pledge for advances of money, and they are called pawnbrokers.
Their business is generally regulated by statute, and they have
special rights, duties and liabilities, which do not attach to pawnees
or pledgees atcommon law.
The contract of pawn or pledge resembles many other contracts,
but still is not exactly like them. It resembles somewhat a lien
but, unlike a lien, it gives an actual though qualified property in
the thing pawned or pledged to the creditor ; a Hen being simply

a mere right in a creditor to be paid out of certain property, and
;;
WHAT MAT BE PLEDGED. 497
is only a privilege. It is, in many respects, like a mortgage btit, ;
besides differing from a mortgagie in its subject-matter, it does not,

like a mortgage, purport absolutely to divest the debtor of his
property in the thing pawned or pledged, but renders his title
subordinate to, or dependent on, that of his creditor. The pawnee
or pledgee gets only a special property in the thing pawned or
pledged ; while, in a mortgage, the title to the property passes to
the mortgagee, subject to an equity of redemption. The contract
of pawn or pledge differs from a loom., because the thing pledged
is not to be used, except under special circumstances, when it is for
the benefit of the owner or pawnor ; while the very object of a

loan of property is that it may be usied. It differs from a deposit,
because in this contract the property is delivered to the depositary
to be kept for the beneflt of the depositor ; while, in a pledge, it is
to be kept as a security for the payment of a claim. It differs from

a hypothecation, in that a hypothecation does not require possession
to accompany it ; while, as has already been stated, the contract of
pledge or pawn is not complete until the creditor has possession,
actual or constructive, of the thing pledged. The case of bottotnry
bonds, and the claims for seamen's wages, are nearly similar to the
hypothecation of the civil law; and they are rather liens than
pledges. In all these cases there is, in some respects, a similarity
and yet the rules in regard to a pawn or pledge are, in general,
much more particular and strict than in case of the other contracts
mentioned, and in certain important particulars it differs from any
• of them ( Vide 1 Boim. Inst., 420, 426).
To make a valid contract of pawn or pledge, there must be, 1st,

property given in pledge ; 2d, a claim to be secured ; 3d, the deliv-
ery of the thing pledged ; 4th, the pawnor or pledgor must enter
into obligations ; 5th, the pawnee or pledgee must be liable to the
obligations; and, 6th, after it has befen made, it may be extin-
guished. These are the requisites of such a transaction, as laid
down by Judge Bouvier, and such, in brief, are the authorities.
It is not essential to a valid pledge that the terms of it should
be in writing and a public record made of it, for the reason that in
every valid pledge the creditor is found in possession of the goods
and that fact, together with the absence of possession in the debtor,
is a sufficient publication of the transaction to other parties dealing
with him.
With reference to what may be pawned or pledged, it may be
63
498 LAW OF PLEDGES.
aifirmed that, ordinarily, all goods and chattels

may be the subject
of a pledge, including money, debts, negotiable instruments and
choses in action ; and, in fact, any other valuable thing of a personal
nature, such as manuscripts and patent rights, may, by the com-
mon law, be delivered in pledge. Upon this proposition, however
certain exceptionshave been grafted from motives of public policy.
Thus, for example, an officer in the army or navy, or other officer
of government, cannot assign or pledge his future accnimg pay, or
other remuneration connected with the right of the government to
fiiture services from him, because it is contrary to the honor, dig-
nity and interest of the State that
its servants should be in danger
of being reduced to poverty by anticipating their resources, which

were intended, to place them in a suitable condition of respecta-
bility, conifort and efficiency. And Judge Story says that tliia
principle applies as well to the half pay of an officer in the army '
or navy as to the full pay. " And it has been added," he remarks,
" that
it might as well be contended that the salaries of the judges,
which are granted to support the dignity of the State and the
administration of justice, may be assigned. The fact that half paj
is intended in part as a reward for past services does not, in any
respect, change the application of the principle; for it is also
designed to enable the party to be always in readiness to return to
public service, if he shall, at anytime, be required so to do" (2
Story's Equity Juriyorvdence, § 1040, d). This doctrine is folly

sustained by the English authorities, which are regarded as perfectly
sound in our own country, and are acted upon by our courts ( Vide
Flatty V. Odhirn, 3 T. E., 681 Stone v. Lidderdale, 2 Anst. B.,
;
533; Tunstall v. Boothby, 10 Sim. B., 540; Greenfield v. Dem

of Windsor, 2 Beamom^s B., 544, 549 Pridely v. Rose, 3 Merw.
;
B., 102). And Judge Story understands that the same doctrine
has been applied to the compensation granted to a public officer
for the reduction of his emoluments or the abolition of his office,
who, by the terms of the grant, might be required to return to the

public service. For, in snch a case, the object of the government
is tocommand a right to his future services, with suitable means
to support him (2 Story's Eq. Jur., §1040, d).
" But it has been thought," says Judge Story, "that a different
prinaiple is properly applicable to pensions, either for life or during
pleasure, which are granted purely for past services or as mere
honorary gratuities, without any obligation to perform futiire ser-

;
WHAT MAT BE PLEDGED. 499
vices, for it has been said that, as in such a case no future benefit
is expected by the State, no public policy or interest is thwarted
by allowing an assignment thereof. And this distinction has been
strongly insisted upon on various occasions. But it may be fairly
questioned whether the public policy, in cases of pensions, is not
thereby materially thwarted and overturned. The object of every
such pension is to secure to the party for his past services or honor-
able conduct, a decent support and maintenance during his life, or
during the pleasure of the government. It is essentially designed
to be for the personal comfort and dignity of the party and for the
honor of the State, and to provide and encourage extraordinary
exertions for the public service, on the part of all citizens or sub-
jects. To enable thp party, therefore, to assign his pension, is to
defeat the very purpose of the government by enabling the
assignor to have all the benefit of the bounty of the government,
and to encourage, on the part of the pensioner, at once indiffe-
rence and profusion, as well as to expose him to all the evils of
poverty " (2 Story's Eg. Jut., § 1040, e). Evidently, Judge Story's
private opinion is adverse to the doctrine that government pen-
sions can be assigned, although he frankly admits that the
authorities seem strongly to support the right of such assignment
and if the right to government pensions, payable in the future,
can be assigned by the pensioner, the same can be pledged or
pawned for the security of a debt or obligation. There is very
reputable authority against this right, although the weight of
authority is in favor of it, and also in favor of the assignability
of half pay. An important case of this description came before
the English Court of Exchequer, wherein Mr. Baron Parke is
reported as saying :
" I concur in the opinion that this action is
not maintained upon the ground

on principles of public
that,
policy, the allowance granted to the defendant was not assignable
by him. It is not necessary in this ease to determine whether this

is an allowance to which the defendant is entitled as a matter of
indefeasible right; or whether it is payable only during pleasure,

although I have a strong impression that it subsists only during
the joint pleasure of the treasury and parliament, by which the
fund for its payment is provided. On the other hand, even if it
be payable only during pleasure, it appears to me that it is not,
therefore, in point of law, the less assignable, however little its
value would be in consequence of b§ing liable to be withdrawn
its
500 LAW OF PLEDGEB.
at any moment. But, viewing the matter on the ground of public

pblicy, we are to look, not so much at the tenor of tiiis pension,
whether it is held for life or during pleasure, or whether it is, in
either case, such a one as the law ought to allow to be assigned.

The correct distinction made on this subject is, that a man may
always assign a pension given to him entirely as a compensation
for past services, whether granted to him for life or merely during
the pleasure of others. In such a case the assignor acquires title
to it both in equity and at law, and may recover back any sums
received in respect to it by the assignor after the date of the
assignment. But, when the pension is granted not exclusively for
past services, but as a consideration for some continuing duty or

service, although the amount of it may be influenced by the length
of the service which the party has already performed, it is against
the policy of the law that it should be assignable " ( Wells v. Foster,
8 Mees. c& Wells., R., 149).
By the act of congress which regulates pensions to widows who
had been married before the 1st of January, 1800, " any pledge,
mortgage, etc., or transfer of any right, claim or interest, in any way
granted by this act," is declared to be " utterly void and of no
effect " (9 JJ. S. Stat, at Large, 265). Clearly by this act no part
of the pension received can be pledged for any purpose whatever.
But by another act of congress passed in 1853, it is provided that
the widows of officers, etc., who were married subsequently to
January, 1800, " shall he entitled to a pension in the same manner
as those who were married before that date " (10 U. 8. Stat, at
La^ge, 154). The Superior Court of the city of New York has
held, that by the true construction of these acts of congress, a
widow, to whom a pension has been granted for the services of her
husband, cannot pledge the certificate by anticipation to an agent
employed to obtain the pension, to secure to him a compensation
for his services ; was declared that such a pledge,
and, in fact, it
no matter to whom made or for what purpose, is whoUy void

{Payne v. Woodhull, 6 Duer's B., 169).
On the ground that the right of a pledgee cannot be consum-
mated unless possession accompany the pledge, it has been doubted
whether incorporeal things like debts, money in stocks, and the
like, which cannot be manually delivered, were the proper subjects
of a pledge. But there seems to be no reason why any legal or

equitable interest whatever in personal property may not be
WMAT MAI' BE FLEDGED. 501
pledged ;
provided the interest can be put, by actual delivery or
by written transfer, into the hands or within the power of the
pledgee, so as to be made available to him for the satisfaction of
the debt ; and so the courts now hold. On this principle, debts
and ehoses in action, and the capital stock of a corporation, and

the like, are capable, by means of a written assignment,' of being
conveyed in pledge {Story on Bail., §§ 290, 297 ; Wilson v. Little,
%m T. R., 44:3, 447).

On the principle of not encouraging litigation, assignments, by
way of pawn which involve champerty or
or pledge or otherwise,
maintenance, or which are intended to convey only a naked right
to litigate, will not be permitted. This rule, however, wiU not, at
the present day, prohibit the pledging of personal property of any
discription, or the right of action which a person may have against
another in scarcely any instance where the same might be pledged,
provided there was no dispute in respect to the pledgee's title
thereto.
Maintenance is defined by very competent authority to " signify
an unlawful taking in hand, or upholding any quarrels or sides to
the disturbance or hindrance of common right. This may be,
where a person assists another in his pretensions to lands by taking
or holding the possession of them by force or snbtilty, or where
a person stirs up quarrels and suits in relation to matters wherein
he is in no way concerned ; or it may be, where a person offici-
ously intermeddles in a suit depending in a court of justice, and

ia no way belonging to him, by assisting either party with money,
or otherwise, in the prosecution or defense of such suit. Where
there is no contract to have a part of the thing in suit, the party
so intermeddling is said to be guilty of maintenance. But if the
party stipulates to have part of the thing in suit, his offense is
called champerty " (1 Russell on Crimes, 266). And it has been
judicially declared that " maintenance is, where there is an agree-
ment, by which one party gives to a stranger the benefit of a suit,
upon condition that he prosecates it " {Ha/rrington v. Long, 2
Mylne & Keen's R., 592).
Judge Story intimates the opinion, that " the doctrine of main-
tenance and champerty, and buying pretended titles, applies only
to cases where there is an adverse right claimed under an inde-
pendent title, not in privity with that of the assignor or seller,
and Hot under a difeputbd' right, claimed in privity, or under «

502 LAW OF PLEDGES.
trust for the assignor or seller. It is not strictly maintenance for
a stranger to advance money for, or to agree to pay the costs of, a

suit not yet commenced for the offense consists in such acts done
;
after a suit is commenced " (2 Story's Eq. Jur., § 1048, note 3).
Many of the absurd doctrines of maintenance grew out of
statutes which were thought necessary in a semi-barbarous age,
and have been swept away by subsequent statutes, or were virtu-
ally abrogated long before the repealing enactments were passed.
For example, in the State of New York, the statutory prohibition
against buying a disputed title is confined to real estate which is
the subject of controversy by suit, or which is not in the posses-
sion of the vendor (2 E. S., 691, §§ 5, 6; 2 Stat, at Large, T13).
Indeed, the policy of the old law, so far as its main principle
was concerned -v- danger from the influence of strong men had —
already been questioned by several of the New York judges,
before the revision of the statutes, as inapplicable to our social
condition {Kent, Gh , in Thallhimer v. Brvnkerhoff, 3 Cow. R.,
644 Marcy,
; J., m Campbell v. Jones, 4 Wend. R., 310). It is
evident from their remarks, that the ancient provisions both of

the common and statute law were regarded as in great part obso-
lete in this country, or in the State of New York, at least ; and in
the argument of a case in England, near forty years ago, with all
the watchful jealousy of the feudal age, its reported cases and
statutes still claiming ascendency in the tomes of "Westminster
Hall, unrepealed and imimpaired, an eminent sergeant (Mr. Wilde,
subsequently chief justice of the Court of Common Pleas) was
listened to with attention by the court, in an argument based
upon similar strictures of English judges, with legal writers and
precedents of the realm, that hardly a vestige even of champerty
remained there Vide Stanley v. Jones, 5 Moore cB Paynes R.,
(
193 S. C, 1 Bvng. B., 369). But be the English law as it may,

;
in this country, at least in the State of New York, it would be

now quite difficult to say there can be a case of maintenance
beyond the purview of existing statutes on the subject.
All choses in action embracing demands which are considered
as matters of property or estate, are now assignable in the State
of New York, either at law or in equity, and, of course, are sub-
jects of. pawn or pledge. At the same time, agreements actually

champertous, as where a stranger to the subject of the litigation,
who has no interest therein in law or equity, or in expectancy, by

WHAT MAT BM PLEDGED. 503
the ties of blood or aflBnity, agrees to assist in embroiling his

neighbors in litigation, or in carrying their suits through the dif-
ferent courts after they are commenced, upon a stipulation that he

shall receive a share of the fruits of the litigation as a rewardfor
his mischievous interference, ought not to be enforced in courts
of justice. A under such circumstances,
subject of litigation,
probably cannot be put in pledge to raise money to carry on the
litigation. But any claim or demand which is the subject of an
assignment may be the subject of a pawn or pledge. Personal
torts which die with the party are excluded, because they cannot
be assigned.
The term pawn or pledge, ex vi termini, excludes the idea oi
real estate;and where lands are given in security for a debt oi'
obligation, the title to them must be conveyed to the creditor by
a mortgage. Real estate may be mortgaged, but it cannot properly
be said to be pawned or pledged.
It may be added that there are instances where the contract ol
pawn or pledge, in relation to ordinary chattels, is vitiated by one
or both of the parties to the contract having been guilty of acts
in themselves unlawful. In such cases the contract will not be
enforced. And there are also instances where the contract is
rendered invalid by statute, on account of the nature of its sub-

ject-matter. For example, by an act passed by the British Parlia-
ment knowingly and willfully to
in 1854, all persons are forbidden
bring, take in exchange, conduct or otherwise receive any militia
arms, clothes or accoutrements, or any such articles as are generally
deemed regimental necessaries, according to the custom of the
army, being provided for the soldier and paid for by deducting out
of his pay, or any public stores or ammunition delivered for the
militia, upon any account or pretense whatever (17 and 18 Vict.,
cap. 105).Where such statutes exist, it is unnecessary to assert that
no such forbidden articles can be subject to pledge or pawn.
But, in a word, by our law all chattels, bills, choses in action,
money, capital stock in corporations, and all other forms of personal
property, and every valuable thing of a personal nature, such as
manuscripts and patent rights, are proper subjects of pawn or
pledge as a general rule ; and where anything of this character is
excluded, it is an exceptional case ( Vide Morris Canal and Bank-
ing Company v. Fisher, 1 Siookt. R., 667).
;
504 LAW OF PLEDGES.
OHAPTEE XXXIX.
THE CLAIM TO BE SECTIKED BY A PAWN OE PLEDGE —
THE DELITKET
OF THE THIKG PLEDGED —
POSSESSION OF THE PLEDGE MUST BB
CONTINUED IN THE PLEDGEE.
A PAWN or pledge will not be valid, unless given for an actual

claim, either for a debt, money, or for the performance of some
foir
engagement. The claim may be one against the pawnor or pledgor,

or against any other person, but it must prove to be a valid, claim.
It may be actually due or to grow due in the future. The pawn
or pledge may be given to secure a present or future lawful engage-
naent, but it must be a claim that can of itself be enforced, and
for a claim agreed upon at the time of the pledge.
It has been held that a pawnee has no lien on the goods pledged,
nor any right to retain them for any subsequent debt of the pawnor,
unless by a new agreement with, him, express or implied, from the
nature or circumstances of the transaction {Elliot v. Lynch, 2
LeigKs R., 493). It has sometimes been argued that a pawnee has
a right to retain the pledge, not only as security for the money
lent upon it, but also for any other debt which may be due to him
and thisargument has been supposed to derive support from the

principles of the civil law. It is true that some passages in the
books seem to countenance such an argument but those passages,
;
probably, may be understood to apply only to debts contracted

• after the pawnee's possession of the pawn, which may be presumed
to have been contracted on the credit of the pawn. Certainly, the

pledge cannot be retained as security for a debt prior to the one
for which it was given to secure. Such a practice would be opposed
to the principles of the common law, whatever inight be said of
the qualifications of the Roman law upon the subject, and it would
seem to be opposed to the principles, of fair dealing ; for, if a debtor
obtain of his creditor a loan of money on pledge, upon an express
agreemfent that the pledge shall be restored on the repayment of
the loan, the creditor cannot retain the pledge as security for a,
prior debt, without violating the principles of gopd faith, And

the same principle would apply to an attempt to hold the pledge
as security for a subsequent obligation, unless the circumstances
were such as to induce theconclusionthatsuch was embraced in the
agreement of pledge.
TBB CLAIM 8BCUBED BY FLEDGE. 505
Parties having a legal capacity to contract have a right to make

such stipulationsbetween themselves as they see fit, provided they do
not contravene the law and such stipulations are to be faithfully
;
observed by the contracting parties. And the law, in such case,

will never make any new contract by implication (
Vide St. John
V. O'Gormd.^ 7 Peters' R., 466). But the pledge or pawn is liable
for all and expenses appertaining to it, such as

incidental charges
the interest on the debt secured by the. pledge, or any expenses
incurred in taking care of the pledge. And it has been held that
the lien of the pledgee covers freight paid by him on the goods
pledged {Clark v. Bearlorn, 103 Mass. JR., 535). The pledge may
be retained as security for these items, the same as for the original
debt or obligation for which it was given to him.

It has been expressly held that a liability of the pawnee to pay
another's debt is sufficient consideration for a pledge of property
to secure his indemnityand the ratio of the consideration to the
;
value of the thing is of no importance (James v. Warren,

pledged
12 Mass. R., 300). And it has also been held that it is no valid
objection by a creditor of the pawnor that the property is agreed to
be held as security for further advances to be made by the pawnee,
if it be also ipade to secure an existing debt. The only question
that properly arises in such cases is the hona fides of the transac-
tion {Badlam v. T'ocker, 1 Pick. R., 398 ; SoTbrook v. Baker, 5
Greenl. R., 309 ; Conrad v. Atlantic Ins. Co., 1 Pet. R., 448).
A late case before the Supreme Court of the State of New York
illustrates the doctrine under consideration. A party agreed to sell
to another a parcel, of land clear and free of encumbrances, except
a certain mortgage, and take his pay in ready-made clothing.
When the vendor executed the conveyance of the land, it appeared
that there were taxes to the amount of $278.24, which were a lien
on the property; and it was stipulated that the vendee should:
retain$650 worth of the clothing, at the invoice price, upon the
condition that, if the vendor should pay the taxes within one
month from that time, the vendee should deliver to him the cloth-
ing; but, if the taxeswere not paid within that time, then the
vendee should, have the right to pay the taxes, and appropriate the
;
clothing to his own use. The court held that the facts did not pre-
sent the case of a pledge ; it being the essence of such a contract
that the thing should be delivered as a security for some debt or
engagement; and that it not appearing that the taxes were assessed
64
'
506 LAW OF FLEDGES.
against the vendor of the land, or that he was in any manner I
for the payment thereof, there was no engagement of the vendor

to which the clothing conld attach as a pledge (Bale v. Rwys, 48
Ba/rb. B., 5Y4). The thing must be delivered as security for some
debt or engagement, in order to constitute a valid pledge.
Another of the essential qualities of the contract of pledge is,
that the property pledged be actually delivered to the pledgee. In •
the old books they took the nature of a pledge to be, that it onght
to be delivered at the same time that the money was lent or obli-
gation incurred and if the goods were not delivered at the same
;
time, in security of the money, they did not plead it as a pledge,

but in the nature of a license, to excuse the trespass. But this
doctrine has long since been exploded ; as a pledge given to redeem

an antecedent debt or obligation still existing is just as valid as
though given for a debt or obligation contracted at the time of the
pledge.- Nevertheless, until the thing pledged is actually delivered
to the pledgee, he acquires no right or property in it. A pawn is
not contracted by a bare promise, but by something done ; although

it appears that a hypothecation may be contracted by a nitdepaof,
or the assurance of the thing to be delivered hereafter. But not
so of a pawn or pledge. Delivery is the essence of this contract.
On this principle thei English Court of King's Bench decided, in a
case before it, where the question was whether an assignment of

the freight and earnings of a ship, by way of pledge, and subject
to a proviso for a reconveyance, extended to profits not in actual
or potential existence at the time of the assignment. And although
the deed of assignment expressly mentioned "all the freight and earn-
ings then due or thereafter tobecome due," Lord EUenborough gave
judgment against the defendants, who claimed under the deed,
because at the time the deed was made the oil from which the earn-
ings were to arise had no existence, actual or potential {Boimsonv.
Maodonald, 6 Maule c& Selw. B., 228)., And " upon this principle
an assignment of sheep which the lessee was to deliver to the
assignor at the end of the lessee's term, or of the wool which
should grow upon such sheep as the assignor should thereafter buy,
have been held inoperative, because the assignor had not at the
time of the assignment that which he was professing to assign,
either actually or potentially, but in possibility only" {Wood and
Foster's case, 1 Leon. B., 42 Grantham v. Bawley, Boh. B.,
;
132). This doctrine, perhaps, should be understood in a modified

;
THE DELIVERY OF THE PLEDGE. ,

507
form, as may appear hereafter. It was remarked in an early Eng-

lish case : " Delivery is of the essence of an English pawn and ;
though according to Roman law the rule is different, yet other

countries adopting the Roman law have corrected this, that if a
pawn be not delivered, it shall not affect a purchaser for valuable
consideration " (Ryell v. Bolle, 1 Ath. R., 167). It is undoubtedly
true that a pawn is complete by delivery, but a sale is complete by

contract. The delivery of a pledge may be actual or constructive.
It need not be an actual manual delivery of the thing itself. It is
sufficient if it passes the mdicia of ownership. Thus in the case
of a ship, the delivering over of the muniments of title is a
delivery of the ship and goods at sea' may be passed in'pledge by a
;
transfer of the muniments of title, as by a written assignment of
the bill of lading. This is equivalent to actual possession, because

it is a delivery of the means of obtaining possession. It has been
lield that goods in a warehouse may be pledged, and that the
deUvery of the keys of the warehouse is a delivery of the goods in
it {JSyell V. Bolle, supra).
The New York Court of Appeals declared, at an early day, that
possession of the property is essential to the existence of a pledge
but that the possession may be according to the nature of the sub-
ject. And it was held that, where the property is not capable of
manual delivery and possession, for example, shares of stock in an
incorporated company, a pledge may be created by a written trans-
fer thereof; and it was said that the transaction may be a pledge
instead of a mortgage, although the legal title passes to the creditor
that the transfer of the legal title is not in any case inconsistent
with a pledge, if the debtor has a right to the restoration of the
property, on payment of the debt at any time, although after it
Mis due.
Ruggles, J., delivered the opinion of the court, and on this
point said :
" The capital stock of a corporate company is not
capable of manual delivery. The scrip or certificate may be deliv-
ered, but that of itself does not carry with it the stockholders,
interest in the corporate funds'. Nor does it necessarily put tliat
interest under the control of the pledgee. The mode in which
the capital stock of a corporation is transferred usually depends on
its by-laws (1 R. 8., 600, §1). It is so in the case of the New
York and Erie Railroad Company {Laws of 1832, ch. 224, § 18)
The case does not show what the by-laws of that corporation
508 LAW OF PLEDGES.
were. It may be that nothing short of the transfer of the title on'
the book of the company would have been sufficient to give the
defendants the absolute possession of the stock, and to secure
them against a transfer to some other person. In such case the
transfer of the legal title being necessary to the change of posses-
sion, ifi entirely consistent with the pledge of goods. Indeed it
is in no case inconsistent with it if it appears by the terms of the
contract that the debtor has a legal right to the restoration of the
pledge on payment of the debt at any time, although after it falls
due, and before the creditor has exercised the power of sale",
( Wilson V. Little, 2 JV. T. M., 443, 447). "Upon this last propo-
sition the learnedjudge cited a case decided by the English courts,
in which the debtor " made over " to the creditor " as his property "
" a chronometer, until a debt of fifty pounds should be repaid;
and it was held that it was a valid pledge {Heeves v. Cappm, 5
Ming. jy. C, 142).
The Supreme Court of California recently declared that, in a
pledge of chattels, mere delivery of the chattel is usually enough
to vest in the pledgee the special property requisite to sustain the
pledge. But that incorporeal property,, being incapable of manual
delivery, cannot be pledged without a written transfer of the
title. Debts, negotiable instruments, stocks in incorporated com-
panies, and choses in action generally are pledged in that mode:
Such performs the same office that the dehvery
transfer of the title
of possession does in a case of a pledge of corporeal property..
The transfer of the title to them, like the ordinary possession of

chattels, constitutes the evidence of the pledgee's right of pro-
perty in the thing pledged. Thus the transfer in writing of shares
of stock not only does not prove that the transaction is not a
pledge, but the stock, unless it is expressly made assignable by
the delivery of the cei-tificate, cannot be pledged in any other
manner {Brewster v. Hartley, 37 Gal. R., 15).

But the rule is well settled and univeraally recognized, that in
case of chattels, delivery or transfer of custody is absolutely
necessary to constitute a pawn or pledge {Thompson v. Andrewsi

8 Jones' Law R., 453; First, etc., Bank v. Wdson,. 38 Ga. E.,
391). been held, however, by the Court of Appeals of the

It has
State of Kentucky, that the deposit of bills of lading for cotton
with a bank, without assignment or other writings and without
actual delivery of the cotton, is a sufficient transfer to pledge the
;
THE DELIVERY OF TBJS PLEDGE. 509

cotton to the bank as security for the p^yme'nt of money advanced
upon the faith of the security so given, and that the lien acquired
by the bank paramount to a subsequent attachment lien {Petill
ig^
T. Fwst, etc., Banh, 4 Bush's H., 334).

If the pledgee has the property in his possession at the time
of the contract, by way of deposit or otherwise, the contract of
pledge transfers to him a virtual possession of the thing, as a
pledge, the moment the contract is consummated. This principle
is elementary, and has also been recently recognized in a case in
the New York Court of Appeals. The Broadway Bank held cer-
tain stocks belonging to one ChampUn as collateral security for
Champlin to the bank. "While the bank had
certain liabilities of
Champlin left with the bank a draft on a
possession of the stocks,
man by the name of "Wood for $3,000 for collection. Subse-
quently Champlin applied to the bank to have the proceeds of the
draft, which was then unaccepted, passed to his credit as a dis-
count. This the bank declined to do, as the draft was one-name
paper, unless it had collateral security. This conversation occurred
between the president of the bank and Champlin.
Champlin asked
bank had heard of anything from the draft on
the president if the
Wood. The president answered, " no." Champlin then said, "I
must have the proceeds of that draft to-day, or I shall go
to protest for the first time." He then said: "You hold all my
stocks they are security for any discounts and this draft."
; The
president of the bank then replied " If that is so, we will put the
:
proceeds of the draft to your credit." And thereupon the bank

advanced to, and put to the credit of Champlin, the proceeds of the
drafl, that is, the amount of it, less the discount. The question for
the' court was, whether or not this constituted an additional pledge
of the stocks beyond the hypothecation of those previously made
and the court held that it did that it was a good pledge of the
;
stocks as security
( Van Blascom v. Broad/wcuy Banh, 37 N. Y.
B., 540; and vide Brown v. Warren, 43 JSf. H. R., 430).
A case was decided by the Supreme Judicial Court of Massachu-
setts several years ago, wherein it appeared that a brickmaker
stipulated with the lessees of the brickyard that they should retain
the bricks to be made, as security for their advances to the brick-
maker. The court held that the bricks became pledged as fast as
they were manufactured.
Putnam, J., delivered the opinion of the court, and on this
510 LAW OF PLEDGES.
point said :
" It was an agreement for the pledging of the bricks
as
they should be made. It is true that, where property is' to be
thereafter acquired, it is not strictly and technically a pledge ; it is
rather an hypothecation ; but where the title is acquired in fuiniro
the right of the pledgee attaches immediately upon it. * * *
Now, we hold it to be clear that the plaintiflPs had a right to retain
Evan's part of the bricks under this contract. It was expressly
agreed by Evans that they should have such a right. Without
such a right it is not to be supposed that the plaintiffs would
have made the great advances which were necessary to enable

Evans, to make the bricks. Every brick as it was formed may well
be considered as delivered to the plaintift's in part execution of the
contract. The whole were put into kilns and burnt in the plain-
tiffs' yard ; for, as the assignees of the lessees, they legally held the
yard in their possession during the term. their land,ô It was
hoc vice, as much as it would have been
had been held by if it
them in fee simple. And thus the property remained when the
defendant attached it " {Macomber v. Parker, 14 Pick. R., 497,
505, 506). This case came under review before the same leaftied
court several years after it was decided, when it was neither sanc-
tioned nor disapproved but it was held that the doctrine of the
;
case did not apply to that of a mortgage.

"Wilde, J., who delivered the opinion of the court, after stating
the facts of the case of Maooniber v. Pwrker, said " This, unques- :
tionably, was a good assignment, upon the principles already stated.

Hunting & Lawrence not only had a potential possession, but they
owned the clay of which the bricks were to be made, subject only
to the rights which Evans might afterward acquire by his contract.
The transmutation of the clay into bricks did not change the right
of property ; so that Evans could not acquire an absolute legal title
to his share of the bricks until he paid the balance due to the plain-
tiffs. Upon this view of the case, the question as to the right
which might be acquired by the pledging or hypothecation of pro-

perty was not material to the decision of the case. But if it were
otherwise, the doctrine laid down by the learned judge who deliv-
ered the opinion of the court in that case is not applicable to the
present case. For if, when a party agrees to pledge property
afterward to be acquired, and, when it is acquired, delivers over
the same to the pledgee, the right of the pledgee would then
attach, it does not follow that the same doctrine would apply to a
TSE DELIVERY OF THE PLEDGE. 511
-mortgage or sale. A mortgage is an executed contract, and it is
clear that nothing passed by the mortgage deed in this case besides
the stock in trade which the mortgagor had at the time the mort-
•gage was executed" {Jones v. Richardson, 10 Met. JR., 481, 490).

"In a somewhat recent case before the Supreme Court of the
State of Illinois, where A. and B. cultivated a farm jointly, A. fur-
nishing a horse, harness, etc., and B. a horse, for their joint use,
and B., who had pledged bis horse to A., on being arrested on a
criminal charge, told A. to take his horse home, that he, B., would
be back in a few days, and A. did so, afterward using and claiming
the horse as his own, it was held a sufficient delivery from B. to
A. to enable the latter to keep the horse as against other creditors
of B. {Pa/rsons v. Overmme, 22 III. R., 58).
Upon this point, the elementary writers use the following lan-
guage; "Not only goods in present possession, but even goods in
reversion, are comprehended under a general pawn or hypotheque,
as corn in the ground, a ship to be built with the timber pledged,
if there be a clause inserted to comprehend it. * * * An
hypotheque may be an assurance of a thing to be delivered here-
after" {Ayliff, Civ. Law, looh 4, tit. 19>,pp. 525, 530, 542). '
In Montagu on Liens, it is said, that " it is usual to speak of

lien hy contract, though that is more in the nature of an agreement
for a pledge. Taken either way, however, the question always is,
whether there be a right to detain the goods till a given demand

shall be satisfied," citing Gladstone v. Birley, 2 Mervo. R., 404.
(Montagu on Liens, 36, note c.)
Judge Story says " By the : Roman law, not only property
of which the party was at the time in possession, or to which the
party was at the time entitled to possession, or to which be had
then a present title, might be pledged, but also property of which
he had neither a present possession nor a present title, and which
might be acquired by him only m
fvMro, and when the title
was so acquired im, futuro, the right of the pledgee attached
immediately upon it. But in such cases it was more properly an
hypothecation than a pledge. In our law, a pledge is strictly con-
fined to property of which there may be a present possession and
title, or in which there is a present vested right or interest. But
although, by the common law, there cannot be a technical pledge
of property not then in existence, or to be acquired infuUi/ro, yet
there may be a contract for an hypothecation thereof; and when
512 LAW OF PLEDGES.
the title is acquired, or the property comes into existence, the right
of the pledgee will immediately attach to it " {Story on Bailm.,
§
294). The learned author also refers to the case of Macomher v.
Parker (14 Pick. P., 297) in the same section, and states the law
to be as therein declared ; but in a note says :
" It is not easy to
reconcile the doctrines of this case, in some of its bearings, with
that of Bonsey vÂunoe (8 Pich P., 236)."
A very importantand well-considered case, involving theques-
tion of the sufficiency of a delivery in case of pledge, was recently
decided by the New York Court of Appeals. It appeared that the
defendants, stock brokers, at the request of the plaintiff, and for
him, but in their own names and with their
funds, purchased own
certain stocks, the plaintiff depositiiig With them a " margin " of
ten per cent, which was to be " kept good," and they " carrying"
the stocks for him. The court held that the legal relation between
the parties by this transaction was necessarily that of pledgor and
pledgees, the stock purchased being the property of the plaintiff,
and, in effect, pledged to the defendants as security for the repay-

ment of the advances made by them in the purchase.
Hunt, Ch. J., who delivered the prevailing opinion of the court,
on this point said :
" "While it is true that the dealer, in the present
case, never had actual possession of the property which he claims
to have pledged, he had it sufficieiitly to bring his case within the
principles of the law of pledge. The substance of the first branch
of the transaction is this : The plaintiff calls upon the defendants,
who are brokers, to purchase for him certain shares of railroad
stock,and furnish him with $1,000 for that purpose, agreeing to
pay interest on advances he shall make in the purchase, and eom-
niissions. The defendants made the purchase, having themselves
advanced ninety per. cent of the purchase-money. They bring to
the plaintiff the certificates of the stock thus purchased by him

and for him, and deliver them to hiln, as the owner thereof. He
thereupon hands them back to the defendants, to hold as security
for their advances on the purchase, with interest and commissions.

If these precise forms had been used, no one would deily that tlie
redelivery of the certificates would have constituted a strict, formal
pledge. In my opinion, the transaction, as it took place, amounted
to the same thing. To have delivered the certificates to the plain-
tiff, and that the plaintiff should then have returned them to the
defendants, to be held by them as security for the advance in their

TBE BEUVERY OF THS PLEDGE. 5l3
purchase, would leave the parties in precisely the same relation as

if the defendantshad retained them for that purpose the fofm of
;
a deUvery to the and a redelivery by him to the defend-

plaintiff,
ants, being waived by agreement of the parties. It comes fully
within the principle I have already quoted from Story on Bailments,

that, where the pledgee has the thing in his possession, the contract
of pledge operates as a delivery the moment the contract is com-
pleted {Story Bail., § 297). The certiflcatefe are appropriated as
security for an engagement, to wit, the payment of the advance,
with interest and commissions. The possession and the delivery
are complete, in the abbreviated manner I have described."
Two of the judges dissented from the conclusion to which the
court came and wrote elaborate opinions, arguing that
in the case,
the legal effect of the contract between the parties was not to create
the relation of pledgor and pledgee, but, on the contrary, that the
transaction was an executory agreement for a pure speculation in
the rise and fall of stock, which the broker, on condition of perfect
indemnity against loss, agreed to carry through in his own name
and oh his own means of credit, accounting to his customer for the
profits, if any, and holding him responsible for the loss; and that
the title to the stocks was never, in any sense, in the supposed
pledgor. But five of the judges concurred with the chief judge
in his views of the legal relations of the parties in the transaction,
and in the final disposition of the case in pursuance of those views
{MarMam v, Jaudon, 41 JST. T. E., 235, 241, 242, 246-258).
The discussion of the question of pawns or pledges, in the last
two cases considered, was important, in order to determine the
rights of the parties, which depended much upon the decision of
the question. The distinctionbetween a pledge and some other
securities has not been regarded as of much moment, nor has it
often been sharply defined ; but it is, in frequent cases, of great

importance. It is of every day's occurrence to give personal pro-
perty, and especially choses in action, as promissory notes and
stocks in incorporated companies, to secure loans of money or debts.
This may be regarded as a mortgage or as a pledge, according to
the contract of the parties ; but the rights and obligations of the
parties are quite different in the one case from the other. The
reason is, that, in the case o:f a pledge, the property passes at once
into the possession of the pledgee; while, in the other case, the
property may remain in the possession of the mortgagor. Hence,
65
: ;
514 LAW OF PLEDGES.
the matter of possession is oftentimes very important, in order to

determine the question whether the transaction is a pledge or other-
wise, for the purpose of ascertaining the legal rights and obligar
tions of the parties. A pledge and a mortgage are securities of a
similar nature, and, when applicable, the same rules will be applied
in the interests of creditors ; but, as between themselves, very dif
ferent rules are applied. What is sufficient evidence in the case of
a pledge, may begathered from a recent case before the Supreme
Court of the State of New York. One Roche, a produce forward-
ing and commission merchant, on applying to the plaintiffs to
discount his promissory note, attached to such note, as collateral, a
paper or receipt, signed by him, as follows

" Eeceived in store, for account of Messrs. Parshall & Shanzlia,
subject to their order, the following named property, as security to
my note, given this day, for fourteen hundred and eighty dollars,
for twenty days from date,

55 tons fine middlings, @ $24 $1,320 00
10 " bran, @ $20 200 00
$1,520 00
(Signed) JOHN ROCHE."

Roche then inlornied Parshall, one of the plaintiffs, that the
property was in his warehouse. This was all that was said or
done concerning the property named in the receipt, at that time
and this was at the banking house of the plaintiffs. The plaintiffs
received the note and receipt from Roche, and advanced him the
avails of the note. The day before the note matured Eoehe
absconded, and the day it did mature, between three and four
o'clock in the afternoon, one of the plaintiffs went to the store of
Roche- and found it in possession of Roche's clerk. He looked
over the store, and then showed the receipt to the clerk, saying:
" There is the paper that shows our right." Thereupon the clerk
handed him the keys to the store. He locked up the store, taking
the keys away with him, and about six o'clock the sheriff went to
the store, found it locked, got a smith to open it, went in and
made a levy, by' virtue of an attachment against Roche, on all the
goods in the among which was a

store, part of the bran and mid-
dlings mentioned in the receipt. The question for the court was
as between the plaintiff's and the sheriff, as to the effect of the
transaction,
TBE DELIVERT OF THE PLEDGE. 515
The court held: 1. That the receipt was not a chattel mortgage.
2. That the transaction, in its legal effect, did not constitute a
pledge, the subject thereof not having been delivered ; and that,
although the plaintiffs had, in a lawful manner, before a levy

made thereon under the attachment, obtained the actual posses-
sion of the property, they were not entitled to the right and pro-
tection of lonafide pledgees; and, 3. That the possession of the

storehouse, gained by the plaintiffs, with the consent of Eoche
shortly before the property was levied on under such attachment,
did not constitute a good delivery, as against the attaching creditor.
Barker, J., delivered the opinion of the court, and said :

" The
plaintiffs insist that an instrument in the nature of a mort-
it is
gage, and if it is not that, then it is a pledge valid in law. * * *

It isnot a chattel mortgage; it contains no words of sale.
* * * The next proposition presented and urged by the plain-
tiffs' counsel. is that the transaction, in its legal effect, constituted
a pledge, and that the plaintiffs having in a lawful manner secured
the actual possession, prior to the sheriff's levy by attachment,
they are entitled to all the rights and protection of a iona fide
pledgee. All there is in the plaintiffs' case, upon which an argu-
ment can be based, is in' this precise point. * * * In this ease
there was not at the time of making the agreement, on the 13th
of December, any manual or constructive delivery of the goods
sought to be held as a pledge. The goods remaining in the very
place where the owner stored and kept them, not even being
viewed by the pledgee, and Eoche continued to keep open the
store and transact business, as he did before the pledge, there can
be no pretense that there was a symbolical delivery. If he had
closed up the store and handed over the keys to the plaintiffs,
there would have been such a delivery, * * * Did the pos-
session of the storehouse, gained by the plaintiffs one hour before
the levy, constitute a
good delivery as against the creditol-s ? I
think not. And
hence I assume that they got possession of the
storehouse with the assent of Eoche. * * * I think the
reasons for holding that delay in filing a chattel mortgage makes
it absolutely void as against creditors, though filed before judg-
ment and execution, are applicable to a case of non-delivery of
goods pledged, and refer to authorities hereinbefore cited on that
pomt. A pledge and a mortgage are securities of a similar nature,
and, where applicable, the same rules should be applied, '
N<5
516 LAW OF PLEDGES.
class of securities known to the law can be so miich and so easily

used in creating and keeping on foot secret and fraudulent agree-
ments, if it be tolerated that a pledgee, as against the creditors of
the pledgor, can delaj' the taking- of possession of the subject of
the pledge until the same be procured by creditors with legal pro-
cess. The interests of trade require that there should be an actual
and continued change of possession of the goods, and such is the
law " {ParahaU v. Egga/rt, 52 Ba/rh. R., 369, 371, 372, 374^376).
It will be observed that the transaction in this case was held not
to amount to a pledge as to the creditors of the pledgor ; not but
that it might be a valid pledge as between the original parties to
it. Doubtless, as to them, the transaction would be held to be a
valid pledge from the moment the pledgee got possession of the
property by the consent of the pledgor. The reasons for the
do not apply with the
strictness of the rule in regard to delivery
same force 'as between the original parties to the transaction, as
between the creditors of the pledgor and the pledgee. The deliv-
ery need not be to the pawnee himself; a mere formal and tem-
porary possession in the hands of a third person on the pawnee's
account has been held to be a substantial compliance with the
rule,and deemed sufficient. But the possession must be actually
changed from the pawnor to the pawnee, or to some third person
on his account.
Delivery and possession are essential to a pledge, but the delivery
may be symbolical, and the possession according to the nature of
the thing pledged. And such delivery will be good as against a
subsequent foreclosure (Nvoan v. Bowp, 8 GlarMs [/owa] R., 207).
Although the pledge will not be complete until delivery of the

thing pledged, yet it is not requisite that the delivery be siinultar
neous with the agreement to pledge, or the incurring of the obli-

gation for which the pledge is given to secure. That is to say,
the money for which the pledge is made to secure, may be received
by the pledgor one day and the contract of pledge be completed
on the next, although there are some English decisions which
would seem to indicate a different position. But, in the language
of one of the judges of the New York Court of Appeals " to say, in
such a case, that the advance is made on the faith of the promise
to pledge, and not on the faith of the pledge, is a nicety of reining,
far too nice for the ordinary, common-sense dealings of business
meft " {Gariniyright v, Wilmerdm^, 24 iT. T, R., 521, 533,

534).
THU DELIVEBT OF TBB PLEDGE. 517
Undoubtedly, if the time between the loan and taking possession

of the property agreed to be pledged for its security be such as to
throw doubt on the transaction, such as with connecting circum-
stances to excite suspicions that the advance was really a loan with-
out security, and the pledging the goods an after-thought, then,
the transaction is not within the protection of the law relating to
pledges. But, in the language of the same learned judge already
quoted, " it surely will not do to hold, as a rule of law, that a man
on receiving the money cannot go around the corner to sign an
order for the delivery of the goods, without changing the nature
of his contract and depriving the delivery of its agreed character
of a pledge."
In the State of Massachusetts, manufacturers of cloth agreed to
give A. security for a debt, and for that purpose authorized one of
their workmen to select and hold a number of pieces of cloth for
the use of A. The workman afterward, at A.'s instance, selected
and removed the cloths to another room in the factory, and gave
notice to the manufacturers and to others. The court held that
this was a valid pledge {Sumner Hamlet, 12 Pick, i?., 76).
v.
The delivery must be actual or constructive and continued and ;
under ordinary circumstances the redelivery of the thing pledged

to the pawnor by the pawnee terminates the contract, and the
pawnee loses his lien upon the property, though his claim or debt
may continue against the pledgor. This is the general rule ; still,
if the thing pledged be delivered back to the owner for a tem-

porary purpose only, with an agreement to redeliver, the pawnee
may recover it on the owner's refusing to restore it {Roberts v.
Wyatt, 2 Taimt. B., 268).
Where a captain had pledged his nautical instruments with the
defendants, who afterward redelivered them to him under a written
agreement that he might have the use of them for the voyage
upon which he was then starting, the captain afterward pledged
the instruments with the plaintiff. On the trial of an inter-
pleader issue, the Court of Common Pleas, of England, gave
judgment for the defendants.
Tindall, C. J., in his opinion, said :
" "We agree entirely with
the doctrine laiddown in Eyall v. RoUe (1 Aik., 165), that, in the
case of a simple pawn of a personal chattel, if the creditor parts
with the possession he loses his property in the pledge; but we

'think the delivery of the chronometer to Wilson, under the terms
518 JCiAW OF PLEDGES.
of the agreement itself, was not a parting with the possession, but
that the possession of Captain Wilson was still the possession of
Messrs Capper. The terms
of the agreement were that 'they
would allow him the use of it for the voyage,' words that, gave
him no interest in the ch;ronometer, hut only a license or per-
mission to use it for a limited time, whilst he continued as their
servant and employed it for the purpose of navigating their
ship. During the continuance of the voyage, and when the
voyage terminated, the possession of Captain Wilson was the pos-
session of Messrs. Capper, as the possession of plate by a but-
-just
ler is the possession of the master ; and the delivery oVer to the
plain ti£E was, ,as between Captain Wilson and the defendants, a
wrongful act, just as the delivery over of the plate of the butler
to a stranger would have heen, and could give no more right to
the bailee than Captain Wilson had himself" {Eemes v. Capper, 5
£mg. N: G., 136 S. C, 6 Scotfs S., 877 S. C, 35 Ung. Ck R,
; ;
64, 56). There was no question of fraud made on the trial of this
case, and the case seems to have been decided upon the same prin-
ciples as though the litigation had been between the original parties.
Upon argument before the court, in banc, it was contended that the
transaction between Wilson and defendants was a mere pledge of
the chronometer as a security for the repayment of the money
advanced and that, by redelivering the instrument to Wilson, the
;
defendants lost their lien, and were left to their action on the agree-
ment. But the court were of the opinion that the facts did not
bring the case within the principle that when .the party to whom
a personal chattel is pledged parts with the possession of it, he loses
aU right to his pledge. The case is important as indicating what
may be regarded as possession of property by the pledgee under
his contract of pledge. The rule is undoubted, as settled by all
the authorities, that if the pawnee, except conditionally, parts with

the possession of the pawn or pledge, he loses the benefit of his
security ;and the case of Hemes v. Capper was not designed to
conflict with this doctrine. By the common law, however, the
pawnee may deliver the pawn into the hands of a stranger, without
consideration, for safe custody, or indeed convey the same interest
conditionally by way of pawn to another person, without destroy-
ing or invalidating his guaranty.
Where the pledgee of an omnibus delivered back the possession
to the owner for a temporary purpose only, -and after the accom-
TBE DELIVERY OF THE PLEDGE. 519
pliehment thereof the property was retarned to him, and the

pledgor Buhsequently, and while the property was in the possession
of the pledgee, mortgaged it to a third person, the Supreme Court
of Illinois held that the mortgage lien thus acquired was subordi-
nate to the title to the pledgee {Cooper v. Bay, 47 lU. B., 53).
The Supreme Court of Maine lately held that in order that a
pledgee may be able to keep good his security as a pledge, he must
retain possession of the property. If he permits it to go back into
the hands of the pledgor, and he sells it, the court holds that the
vendee wiU acquire a good title thereto {Day v. Swift, 48 Maine
B.', 368). And the same court held, in a much earlier case, that a
delivery of personal property for security is not a transfer on con-
dition, and does not constitute a mortgage thereof, but a pledge
merely ; and that if the pledgee voluntarily relinquishes the pos-

session of the property to the pledgor and does not regain it, his
right thereto against third persons ceases {Easbman v. Avery, 10
Sh&p. B., 248). . And the same court reiterated the same doctrine
at a later date, holding that a pledge is not perfect unless the chat-
tel be delivered, nor does any longer than possession be
it subsist
retained by the pledgee {Beewxm v. La/wton, 37 Maine B., 548).
The Supreme Court of North Carolina has frequently decided that
property delivered as a pledge to secure a debt, and redelivered by
the pawnee to the is liable to be seized and sold under
pawnor,
execution against the pawnor, or sold by him, and a good title
passes (Ba/rrett v. Cole, 4 Jones' La/w B., 40 Smith v. Sasser,;
lb., 43). The same court has gone so far as to decide that by giv-
ing up the thing pawned to the pawnor, though for a special pur-
pawnee loses his lien, as between himself and the pawnor
pose, the
{Bodenhamner v. Newsmi, 5 Jones^ Lano B., 107).

The Supreme Court of New Hampshire has decided that posses-
sion is essential, not only to the creation, but also to the continu-
ance of the lien created by a pledge, and that such lien wUl be
forfeitedby a voluntary delivery of the property to the pledgee.
It was held, however, that possession and control of the property
by the wrongfvl act of the pledgor, without-the assent of the

pledgee, will not create a forfeiture of the lien, nor defeat his right
of action to recover damages for an injury to, or a conversion of,
the pledge Walcott v. Keith, 2 Foster's B., 196).
(
The Supreme Court of Tennessee has held that a lien on a

pledge may be waived by voluntary surrender of the pledge with
520 liAW OF PLEDGES.
intent to abandon the lien, or by agreeing that it may be attached

at the suit of a third person, but not by the pledgee's attachment
to be made on the property pledged to enforce his lien and as a
mode of sale {Arendale ^'Morgan, 5 Sneed's £., 703).
The doctrine of the Superior Court of the city of New York, as
laid down over twenty years ago, when the bench of that court
was graced by as able judges as ever sat upon any bench, would
seem to be decisive upon this subject. The court held, in con-
formity with the general rule, that the essence of the contract of
pledge is that there shall be an actual dplivery of the thing to the
pledgee, and tihe common-law rule was recognized that as a gene-
back of the possession of the
ral proposition the positive delivery
thing with the consent of the pledgee terminates his title. But .
the court decided that the delivery of the pledge to the pledgor,
for a temporary purpose, as agent or special bailee for the pledgee,
does not impair the title or possession of the latter, as between the
parties, nor even as to third persons. {Hays v. Riddle, 1 Sandf.
B., 248 ; and vide Jones JBal4win, 12 ^Pipk. B., 316). This,
v.
doubtless, is a correct view of the question, and may be regarded as

of quite general a,pplication. The subject may be touched upon
incidentally in a subsequent chapter.
CHAPTEK XL.
THE PEKSON OF THE PAWNOE OE PLEDGOE —

THE POWEE OF MIN0E8,
MAEEIED WOMEN, FAOTOES AND OTHEE AGENTS TO MAKE A PLEDGE
OB PAWN.
It has been intimated in a previous chapter tnat any person,

baying a general capacity to contract, may enter into the engage-
ment in respect to a pawn or pledge. Persons under disabilities
are affected by the lack of capacity in this as in other cases of

contract. Lunatics, and iôn compotes mentis from age, debility or
otherwise, are wholly unable to make a valid pledge or receive
one. Minors are not entirely disqualified from making contracts;
they are sometime^ absolutely bound by their contracts, but their
contracts are generally voidable, and probably this would be. the
rule in all cases in respect to pledges or pawns, but their voida-
ble contracts are only to be avoided upon their own election,
WBO MAT MAKM A PLEDGE. 521
At tlie common women are incapable of making or

law, married
may not enter into a personal obliga-
receiving a pledge, as they
tion of any kind. But by the statutes of many of the States,
femes covert are made capable of binding themselves by contract
in certain cases, and disposing of their personal property ; and in
these cases they are qualified to make or receive a pledge the same
as a/eme sole. In respect to pledges by persons under legal age,
they may be manner and under
affirmed or disaffirmed in the same
the same circumstances that the contracts of infants for the sale
of their chattels may be affirmed or avoided. Perhaps there is
nothing pequliar in this con'tract to make it an exception to the
general rule.
Persons incompetent to enter into, the contract, for themselves
(aS; infants and married women), may be agents for othersj pro-
vided tiiey have the maturity and mental qualifications to enable
them to. do business of -this nature. A married woman may act
as the agent of her- husband, and as such, with his consent, biijd
himby her contract or qther act or she may act as the
; agent, of
another in a contract with her own husband, although it, is noC
clear that she can act as the agent of a third person against the
express dissent of her husband {Story on Agency, § 7)., But a
married woman or minor, capable of doing business as an agent in
1 other matters, may act as the agent of another, in the matter of a
pledge.
A person non compfls mentis, who is, nevertheless, apparently of
sound mind, and not known by the other contracting paxty to be
otherwise, if he enters into a contract for the purchase or pawn of
property, which is fair and hona fide,, and which is, executed and
completed; and the property, the subject-matter of the contract,
has been paid for and fully enjoyed, and cannot be restored so as
to put the parties, in stoi^w ^MOj, such contract cannot afterward be
set aside {MoUon v. Gamroux, 4 Ex. R., 17).
There may be cases in which the pawneei will lose his right to
the pawn or pledge, even, though the pawnor be a perso,n under no
disability, An instance of this kind was supposed to be where it
was held ,that a faetor or agent who jpfo%e«? the goods of his prin^
cipal, muBt,^wrea/acie, be taken to have acted in excess of his
authority, and, therefore,, the principal was held not bound by his
agent's acts, u-jdess; the. pledging was made under the eoipress autho-
rity of the principal. The usjial employment of a factor being ic
66
522 li^W 01 PLEDGES.
mil, it has been repeatedly held that he cannot pledge the goods
intrusted to him ; and that the mere circumstance of a principal
drawing bills on his factor, to whom goods were consigned, to be
provided for out of the proceeds of such goods, would not autho-
rize the factor to pledge them for the purpose of raising money, to
meet such bills. On this ground, where a factor had become bank-
rupt, and a person to whom he had pawned goods sold them, the
principal recovered the entire proceeds of the sale in an action for
money had and received, though the factor had appropriated part
of the money advanced by the pawnee or pledgee to the payment
of one of the bills drawn by the principal or his agent, the pawnor.
There are several English cases holding this doctrine, although
it was observed by Lord EUenborough, in the decision of one case,
that it was a hard doctrine when the pawnee was told that the
pledgor of the goods had no authority to pledge them, being a
mere factor for sale, and yet he declared that, since the case of
Paterson v. Task, that doctrine has never been overturned {Pick-
ering V. Busk, 15 EasGs P., 38). A factor, though clothed with
an apparent ownership of the goods, has no power to pledge the
property consigned to him for sale. And this rule has been
applied even where advances had been made on a bill of lading in
the factor's favor, by a person who did not know that he was not
the owner of the goods.
Where goods were consigned on the joint account of the con-
signors and consignee, and a bill of lading was sent to deliver the
goods to the consignee or his assigns, who afterward indorsed and

delivered the bill of lading to the defendants, upon condition of
their making an advance to them on it, which they failed to do,
but claimed to retain it as a security for prior advances, the Eng-

lish Court of King's Bench held that such indorsement and
delivery of the bill of lading did not divest the consignor's right,
to stop the goods in transitu, upon the insolvency of the con-
signee, who had not paid for them. And the doctrine was declared
that a factor cunnot pledge the goods of his principal by indorse-
ment and delivery of the biU of lading, any more than by the
delivery of the goods themselves, though the indorsers knew not
that he was factor.

Lord EUenborough, C. J., in his opinion, said :
" BTow, this was
a direct pledge of the bill of lading, and not intended by the par-
ties as a sale. A bill of lading, indeed, shall pass the property

;
WBO MAT MAKE A PLEDGE. 523
upon a honafide indorsement and delivery, where it is intended so

to operate, in the same manner as a direct delivery of the goods
themselves would do, if so intended. But it cannot operate

further. Ifow, if the factor had been in possession of the goods
themselves, sell them to the defendants hona
and had purported to
fide,
would
the property have passed by the delivery ; but not if
he had meant to pledge them, because it is beyond the scope of a
factor's authority to pledge the goods of his principal. The symbol,

then, shall not have a greater operation to enable him to defraud
his principal than the actual possession of that which it represents.
The principal who trusts his factor with the power to sell abso-
lutely shall so far be bound by his act ; but the defendants shall
not extend the factor's act beyond what was intended at the time
and here only a pledge was intended, which he had no authority
to make."
Grose, J., said :
" It is admitted that a factor cannot pledge the
goods of his principal by delivery of the goods themselves then ;
is it not inconsistent to say that he may do so by delivery of the

bill of lading ? If his delivery of the goods themselves as a pledge
will not .pass the property, much less shall his delivery of the bill
of lading operate in that manner."
Le Blanc, J., observed " I do not know that the trade of the
;
country will suffer much

risk by our holding that in a case where
if the goods themselveshad come into the factor's hands he could
Tiot pledge them, he shall not be able to pledge them by means of
the instrument which gives him authority to receive the goods.

Some of the cases, indeed, state the opinion of the judges generally,
that no indorsement of a bill of lading will pass the property, but
thatmust be taken with reference to the circumstances of the case,
and is not to be applied to the case of a i'iatoY pledging the goods
of his principal, but to that of a vendor selling goods in which he
has a property. The cases show, indeed, that where either vendee
or factor intend to sell the goods, the indorsement of the bill of
lading for that purpose will bind the vendor or principal. The
case of Wright v. Comipbell appears, I think, to be that of a sale ;
for it was agreed that Scott, the indorser of the bill, should sell the
goods. But at least we may say of it, -that it is not an authority
for holding that a factor vaaj pledge the bill of lading, though he
could not pledge the goods themselves. And our now determin-
ing that a factor cannot make such a pledge will not break in at
524 LA W OF PLEDGES.
upon the doctrine of Lickharrow v. Mason^ that the

all indorse-
ment of a bill of lading upon the sale of the goods will pass the
property to a bona fide indorsee, the property being iiitended to
pass by such indorsement " {Newson v. Thorton, 6 Eas^s R., Ifjt
The common-law doctrine, that the possession of a factor or
broker does not authorize him to pledge the property, is clear and
well settled. As before intimated, the English authorities are
uniform upon the subject, and the doctrine has been frequently
recognized by the American courts. It was said in an early case
in the State of New York, that although a factor cannot pledge
the goods of his principal as his own, yet he may deliver them to
a third person as security, with notice of his lien, and as his assent
to keep possession for him in order to preserve that lien {Urqvi
hart V. Mclver, 4 Jolms. B., 103). And it has been repeatedly
decided in Massachusetts that a factor has no right to pledge the
goods intrusted to him {NeweU v. Pratt, 5 Gush. ^.,111 ; Kinder
V. Shano^ 2 Mass. R., 398 ; Jarms v. JRogers, 15 »J., 389 ; amd
Hide Odiorne v. Maxey-, 13 *5., 178). And the Circuit Court of
the United States for the district of Massachusetts decided' that a
factor could not pledge the goods of his principal for his own
debt ; and if he does, that the principal may, after a demand
and refusal, maintain trover for them against the pawnee {Van
Arwrmge v. Peahody, 1 Mason's R., MO).
The courts of the State of South Carolina have recognized the
same doctrine, holding that a consignee or factor cannot pledge
the goods of his principal for his own debt; although it was
declared that a sub-agent might have a lien upon the goodfr for
advances made by him (Bowie v. Na/pier, 1 MoGord^» B., 1).
And in an early case in the State of Pennsylvania it was held

that no custom for factors to pledge the goods of their principals
could be pleaded (Newbold v. Wright:, 4BoaMs B.<, 195 ; and

vide Laussatt v. lAppineott, 6 S&rg. de BaiMs B., 385).
And the Supreme Court of Alabama held, so late as 1853, that
a factor or commission merchant is not authorized by law to pledge
the goods of his principal for his own use, and that his pledgee
can acquire no title to them, as against the principal, whether he
dealt with the factor in ignorance of his title or not ; that the
principal, in case of such attempted pledge, may bring trover

against the factor and his pledgee, or either of them, at his elec-
tion. It was, however, declared that the factor is estopped by his

WHO MAT MAKE A PLUDOK 525
own tortious acts, and that he cannot take advantage of the viola-
tion of his duty or authority to set aside the contract. And it
was further 'held that a subsequent purchaser of the factor acquire?

no better title than the factor himself had, and cannot recover the
goods from the pledgee, although the sale was made within the
scope of the factor's authority {Bott v. MoCoy, 20 Ala. R., 578).
This is the common-law doctrine upon the subject but the rule
;
has been changed by statute in England, and in many of the

American States. By the present statute of England, the taking
of goods or bills of lading in pledge from the consignee thereof
is rendered lawfnl, but the consignee cannot thereby give any
better or greater right to the goods than he himself possessed (4
Stalmte of Geo. IV, ch. 83, a/mended % stabwte 6 Geo. IV, ch. 94,
mnmonh/ called the Factors' Act, amd also amended by statute 5

and 6 Vict., ch. 39).
Under these statutes the factor has power to pledge the property
consigned to him to the extent of the interest which he has in the
goods, which is a right to be indemnified against the biUs he has
accepted, and nothing more ( Vide Fletcher v. Heath, 1 Mam,, cfe
Ry. R., 335). And the court have held that the right of the fac-
tor, under the statute, to pledge the goods of his principal depends
on the question whether, on the face of the whole account between
them, the principal is indebted to the factor. Therefore, where a
factor kept both a joint and separate account with his principal,
and upon the two accounts was indebted to him, but on the sepa-
rate account against which the draft was drawn the balance was
in the factor's favor, it was held that the factor had no right to
pledge, and that the pledgee could not retain the goods against the
principal, even though the principal, for some time after notice of
the pledge, forbore to make any demand upon the pledgee, unless
it could be shown that the effect of such forbearance had been to
alter the position of the principal for the better, or of the pledgee
for the worse {Robertson v. Kensington, 5 Mam,, cfe Ry. R., 381).
And in another case, where the pledge was by a factor for an ante-
cedent debt, the court held that the defendants, being the pawnees,
could not hold the proceeds against the real owner, but that, in
estimating the damages, they were entitled to credit for any bal-
ance due from the owner to the factor {Taylor v. Freeman, 1
Mood. & Mai. R., 453).
Under the English statute a pledge by a pawnor, who is known
526 LAW OF PLEDGES.
to have received the goods or documents as the agent of the owner

for the purpose of sale, will be perfectly valid. In order to vitiate
such a transaction, not sufficient that the owner should have
it is
transmitted the articles simply with directions to sell, and that this
was known to the pawnee, but there must have been a prohibition
of pledging by the owner, and notice of it to, mdla fides on
or
the part of, the pawnee making the advance. Mere suspicion, oi
a slight suspicion, wiU not take away the protection of the statute,
indeed, it has been declared that no suspicion will afEect the trans-
action. If there is not mala fides, there is an end of the case.
The evidence for the jury, where there is no evidence of direct
communication, is, whether the circumstances were such that a
reasonable man and a man of business, applying his understanding
to them, would hoiow that the goods were not the property of the
pledgor. If so, the pledgees are not entitled to retain {Navulr
shaw v: Brownrigg, 1 Sim. N. S. R., 573 ; 8. C, 2 Le G., M. c&
Q. R., 441 ; Evans v. Freemam., 1 Mood. (& Mai. R., 10).

"Where A. pledged goods with B., a broker, who repledged them
to C, to secure advances of which, unkno',vn to C, A. was to have
the benefit, was held that A. had no equity to restrain C. from
it
selling immediately on B.'s default. A person holding bills for the

purpose of getting them discounted has no power to pledge them,
or to mix them with bills of other customers and pledge the whole
in a mass to secure a loan to himself {Mwynes v. Foster, 4 Tyr-
wMtt's R., 653).
The pawnor who claims the benefit of the statute must have
acted bona fide, and without corrupt agreement or understanding
with the pledging factor. Therefore, where a plaintiff had con-
signed goods to his agent, who was liable, together with the defend-
ant, on a bill of exchange which had become due, obtained from
the defendant £300 to take up the bUl, and at the same time depos-
ited with him some of the plaintiff's goods, the judge told the jury
that if they thought the transaction, was only a circuitous mode of
paying the bill on which the defendant was liable, it was not within
the protection of the act. The jury found for the plaintiff, and
the Court of Exchequer unanimously upheld the ruling {Zea/royd
V. Robinson, 12 Mees. di Welsh. R., 745).
But when there are no mala fides, the principal may be bound
by the acts of his agent, even when acting under an authority
defective in form. As when B. authorized R., by power of attor

WBO MAT MAKE A PLEDGE. 527
ney, to borrow money and grant a mortgage, E. employed, with

leave, a sub-agent, who got the money from D., on producing tbe
power of attorney and a declaration signed by B. The power of
attorney was invalid, and R. failed to account to B. The court
held that B.was estopped from setting this up as against D., and was
bound by the acts of E., for the borrowing was not upon condition
of the mortgage being valid {Dewysson v. Botha, 2 L. T., JSf. S.,
126). And the rule is as applicable in cases of persons making

pledges as in other matters, that, where authority to an agent is
general, it will be construed liberally, but according to the usual
course of business in such matters ; when it is given by parol and
is ambiguous, it is to be construed according to the course of trade
in such matters ; and when it is unexpressed, it is to be ascertained
by investigating the course of dealing pursued by the several par-
ties to the transactions {Pale v. Leash, 28 Beav. R., 562).
Where bankers advanced money in the way of their business
and lonafde, as security of goods deposited with them, to Sydney
Linnet, by agreement with or at the request of John Linnet, and
John being afterward entrusted by Sydney, as agent of the plain-
tiff, with jewels, which he deposited with the bankers as security
for past advances to Sydney, and for further advances to be made
to Sydney on John's request, and that John should receive back
the goods first pledged, the court held that the case was within the
factor's act (5 and 6 Viot., ch. 39), and that proof given
by plain-
tiff of his agent's fraud would not take it out of the meaning of the
statute [Sheppwrd v. Union Bank of London, ^ L.T., ISF. S. Ex. R.,
757). But one partner of a firm cannot legally deposit in pledge shares
of capital stock belonging to the firm to the bank to secure the pay-
ment of money advanced to him individually, if the bank is cogni-

zant of all the facts. And where one member of a firm deposited
shares on his own private account, the court held that this did not
give thebank the right to retain such shares as security for a debt
due from him jointly with other members of his firm (Ex ])arte
McKenna, m
re MorUmer, 7 Jwr. N. S., 588 8. G., i L. T. N. ;
S., 164). And as modus et conventio vinount legem, so they will also
override any custom to which they are repugnant, as where a cus-
tomer deposited a deed of conveyance with his bankers, giving at
the same time a memorandum, pledging one of the properties as
security for a specific sum, and also for his general balance, it was
held that as the deposit of the deed was for the special purpose of
;
528 LJiW OF PLEDGES.
giving a security on one property only, the bankers could claim no

general lien, by the custom of bankers, on the properties ( Wylde
V. Radford, 33 Z. J., ch. 51; S. C, 9 Jwr.j N. S., 1169). But
perhaps these statements are not as pertinent to the discussion of
the question of the person of the pawnor or pledgor as to some
other aspect of the subject of pawns and pledges. Similar legisla-
tion to the English, in respect to the power of factors to pledge

property in their possession, has taken place in several of tlie
American States and in all cases where the question is regulated

;
by statute, the statute must be consulted for the rules governing

the subject. In this coTinection the question is examined solely
in its relations to the person of the pawnor or pledgor; In subse-

quent pages, pledges by factors will be considered in other of its
phases in connection with the subject of pawns or pledges in its
more general features.

Upon this subject the statute of 'Eem York provides that every
person in whose name any merchandise shall be shipped shall be
deemed the true owner thereof, so far as to entitle the consignee

of such merchandise to a lien thereon for anymoney advanced, or
negotiable security given, by such consignee, to or for the use
of the person in whose name such shipment shall have been made
and for any money or negotiable security received by the person
in whose name such shipment shall have been made, to or for the
use of such consignee ;
provided, however, that the lien shall not
exist when the consignee shall have notice, by the bill of lading or
otherwise, at or before the advancing of any money or security by
him, or at or before the receiving of such money or security by the
person in whose name the shipment shall have been made, that
such person is not the actual and 'bona fide owner thereof.
The statute further provides that every factor or other agent
intrusted with the possession of any bill of lading, custom-house
permit, or warehouse keeper's receipt for the delivery of any siicli
merchandise, and every such factor or agent not having the docu-
mentary evidence of title, who shall be intrusted with the posses-
sion of any merchandise for the purpose of sale, or as security tbv
any advances to be made or obtained thereon, shall be deemed to
be the true owner thereof, so far as to give validity to any contract
made by such agent with any other person, for the sale or disposi-
tion of thewhole or any part of such merchandise, for any money

advanced, or negotiable instrument or other obligation in writing
WMO MAT MAKE A PLEDGE. 529
given by Biich other person upon the faith thereof. But it is

decliwed that every person who shall accept or take any such mer-
chandise in deposit from any such agent, as a security for any
antecedent debt or demand, shall not acquire thereby or enforce
any right or interest in or to such merchandise or document, other
than was possessed or might have been enforced by such agent at
the time of such deposit.

In all cases the true owner of any merchandise so deposited may
demand and be entitled to the possession of the same, upon repay-
ment of the money advanced, or on restoration of the security
given, on the deposit of such merchandise, and upon satisfying any
lien that may exist thereon in favor of the agent who deposited
the same (Laws o/1830, 4 Stat, at La/rge, 461, 462).
oh. 179,
Under this statute it has been held that a person making
advances to a factor upon property in his own possession, for the
purpose of sale, will not be protected by the provisions of the sta-
tute provided he had knowledge at the time of the advances that
;
the factor was not the owner of the goods. The court referred to
the commoti-law rule, that a factor co.uld not pledge the goods so
as even to transfer his lien to the pledgee, and then decided that
the provisions of the statute, taken in connection with the previous
law upon the subject, evidently protected pledgees who had
advanced their money or given their negotiable note or acceptance
or other written obligation, upon the faith or belief of the fact that
the person with whom they dealt was the real owner of the pro-
perty. It was thought that any other construction of the statute
would authorize the agent or factor to commit a fraud upon his
principal, with the connivance of the purchaser or pledgor, who
had notice of the iiduciary character of the vendor or pledgor.
And it was further declared tha;t the statute of New York does
not, like the English statute, authorize the agent or factor to pledge
the goods of his principal, to the extent of his own lien, to persons
who are aware of his fiduciary character, and without any authority
for that purpose from his principal {Stevens v. Wilson, 3 Denio's
JR., 472).
But even under the British statute it has been held that a 'mere
liability of the agent or factor, upon acceptances for his principal, is
not suiBcient to give such agent or factor a lien which will autho-
rize him to pledge the goods to a third person, without the consent
of the principal. In two important cases, especially, th? factor
67
530 LAW OF PLEDGES.
was under acceptances for his principal at the time he pledged the
goods for advances thereon, but which acceptances the principal
afterward duly paid or provided for. And it was held that the
pledgee could not hold the goods to the amount of the acceptances
for which the factor was liable at the time the goods were pledged
but which he was not afterward compelled to pay {Fletcher v.
Heath, 1 Bwrn. <& Cress. R., 51T Blcmdy Y.Allan, jjawson a/nd
;
LloyWs Mercantile Cases, 22). This is a distinction important to

be borne in mind, even in cases where parties deal with reference
to the protection of the statute.
A simple trustee has no power to pledge the property of the
own personal debt or obliga-
cestui que trust as a security for his
tion,nor ordinarily to secure the payment for advances in favor
of the cestui que trust himself. And if such trustee should thus.
pledge the trust property to a person having knowledge of the
trust, the transaction would be void. In a late case decided by
the Supreme Judiciar Court of Massachusetts, it was held that one
holding stock as trustee Yiw prima facie no right to pledge it to
secure his own debt growing out of a transaction independent of

the trust. And it was declared that if a certificate of stock issued
in the name of " A. B., trustee," is pledged by him to release his

own debt, the pledgee is, by the terms of the certificate, put on
inquiry as to the character and limitations of the trust ; and if he
accepts the pledge without inquiry, he does so at his peril.
Foster, J., delivered the opinion of the court, and on this point
said : " It cannot possibly be material whether the manual delivery
of the certificates was by Mellen or by Carter himself Unless
the word '
trustee ' may be regarded as mere descri/ptio jpersonm,
and rejected as a nullity, there was plain and actual notice of the
existence of a trust of some description. A trust, as to personalty
or choses in action, need not be expressed in writing, but may be
established by parol. And that the mere use of the word trustee,' '
in the assignment of a mortgage and note, imports the existence

of a trust, and gives notice thereof to all into whose hands the
instrument comes, has been expressly decided by this court {Stur-
tevant v. Jaques, 14 Allen, 523 ; see, also, Bancroft v. Cousen, 13
Allen, 50 ; and Trull v. Trull, lb., 407). It is insisted, on behalf

of the defendants, that even if there was actual notice of the
existence of a trust, there was no notice of its character, and that
the trust might have been such as to authorise th^ transfer which
WHO MAY MAKE A PLEDGE. 531
was made by Carter. But, in our opinion, the simple answer to

this position is that, where one known to be a trustee is found
pledging that which is known to be trust property, to secure a debt
due from a firm of which he member, the act is one prima

is a
fade unauthorized and unlawful, and it is the duty of him who
takes such security to ascertain whether the trustee has a right to
give it. The appropriation of corporate stock held in trust as col-

lateral security for the trustee's own debt, or a debt which he owes
jointly with others, is a transaction so far beyond the ordinary
Bcope of a trustee's authority and out of the common course of
business, as to be, in itself, a suspicious circumstance, imposing
.upon the creditor the duty of inquiry. This would hardly be con-
troverted in a case where the stock was held by A. B., trustee for '
C. D.' But the effect of the word trustee,' alo'ne, is the same.
'
It means trustee for some one whose name is not disclosed and ;
there is no greater reason for assuming that a trustee is authorized

to pledge for his own debt the property of an unnamed cestui que
trust, than the property of one whose name is known. In either

ease it is highly improbable that the right to do so exists. The
apparent differencebetween the two springs from the erroneous
assumption that the word 'trustee,' alone, has no meaning or legal
effect.
" Inasmuch as such an act of pledging property is prima fade

unlawful, there would be little hardship in imposing on the party
who takes the security, not only the duty of inquiry, but the bur-
den of ascertaining the actual facts at his peril" (Shaw y. Spencer,
100 Mass. R., 382, 389, 390).
This case was very ably argued and carefully considered by the
court, and isimportant as settling, beyond controversy, the doc-
trine that the pledging of trust property by the trustee, for the
security of his own debt or obligation, is unlawful, and also as
throwing light upon the doctrine of constructive notice, in such a
case, to the pledgee.
Substantially the same doctrine was incidentally recognized in the
decision of a case before the Circuit Court of the United States
for the district of N"ew Jersey {Vide Martin v. The Somerville
Water Power Compamy, 27 How. Pr. R., 161).

It has been before suggested that a married woman may act as the
agent of her husband, under a proper appointment, so that a pledge
of her husband's property, by her, m^y be valid and binding on
532 LAW OF PLEDGES.
the husband. But she has no such power simply from he* relations
to her husband
as his wife. "Where a debtor left the State on
account of his pecuniary embarrassments, having given verbal
directions to an individual to assist in the settlement of his affairs
itwas held by the Supreme Judicial Court of Massachusetts that
such individual was not thereby authorized to pledge the debtor's
property as security for a debt, and that neither had the wife of
the debtor, who had the care of settling the debtor's affairs in
his absence, any such authority to make the contract of pledge of
her husband's property to secure his debts {BmeU^.Brown,^Pick.
B., 178).
The result is, that any person, competent in general to make a
valid contract, is capable of pledging his own goods, chattels and
personal effects , as a security of a debt or obligation ; and also any
person duly authorized to act as the general agent of the owner of
the property, or who has special authority to make the pledge,
may pledge the property of his principal in good faith, so as to
make it binding on the principal. The wife cannot ordinaply

make a valid pledge of her own property or that of her husband,
although she may act as the agent of her husband ; and, where the
authority is general, or specially extended, to such business, she
may make a valid pledge of his property and in those cases where
;
the statute empowers a feme covert to hold personal property and

deal with it as a feme sole, and the like, she may make a valid
pledge of her own property the same as a feme sole. In respect
to a fector, he has no power, at common law, to affect the property
consigned to him by pledging it as a security or satisfaction for a
debt of his own and it is of no consequence that the pledgee is
;
ignorant of the factor's not being the owner. When goods are so
pledged or disposed of, the principal may recover them back by

action against the pawnee, without tendering to the factor what
may be due to him, and without any tender to the pawnee of the
sum for which the goods were pledged, or indeed without any
demand of such goods, according to some of the cases and it is ;
no excuse that the pawnee was wholly ignorant that he who held
the goods held them as the mere agent or factor, unless the prin-
cipal has held forth the factor or agent as the principal or owner
of the goods so pledged. The common-law rule has been changed
in some cases and in those instances the subject
by statute,
will be governed by the provisions of the statute some rules ;
;
THE TITLE OF TUE PLEDGOR. 538
respecting which' have been hereinbefore referred to. And with

respect to minors, their contracts of pledge of their own property
are voidable at their own election ; and when they elect to avoid
them, they must proceed as in other cases where they seek to dis-
affirm their own acts. This is probably all that is necessary upon
th6 iiMportaht subject of the person of the pawnor or pledgor.
CHAPTEE XLI.
THE TTTLE OF THE PAWNOR OB PLKDGOE, AND HIS PEOPEETT IN

THE THING PLEDGED OE PAWNED HIS OBLIGATIONS AND DUTIES
HT EESPEOT TO THE THING PAWNED OE PLEDGED.
From the very nature of the contract of pawn or pledge, it is
pite obvious that the pawnor does not lose all right to the pawn
when he parts with the possession. Indeed, the real distinction
between a pawn or pledge and a chattel mortgage is, that in a'
pledge the legal property continues in the pawnor, and only a spe-
cial property passes to the pawnee ; whereas, in a chattel mort-
gage, the legal property is in the mortgagee, subject to being
defeated by performance of the conditions of the instrument by
the mortgagor. It was said by the chief justice of the Court of
King's Bench of England, that " pledging does not make an abso-
lute property, butis a delivery only tiU payment, and may be
redemanded at any time upon payment of the money for it is ;
delivered only as a security for the money lent ; and there is a

difference between the mortgaging of land and pledging of goods
for the mortgagee has an absolute interest in the land, whereas thd
other has but a special property in the goods to detain them for his
security." And in another place it is observed :
" The delivery is
nothing but the bare custody, and it is not like to a mortgage, for
then he that has interest ought to have the money but in the case ;
of a pledge it is only a special property in him that

takes it, and
the general property continues in the first owner," quod non fmt
negatum {Ratdiff v. Dams, Cro. Jac, 245
C, Yelvertonh E.,
; S.
178). This doctrine is well settled and often reicognized by the
courts {Vide Oortebyou v. Lwnsin^, 2 Gm. Gas,
200; Bwrrow'y.
P<Mon, 5 Johns. ^.,258).
The Superior Court of the city of New York has held,.ina,late
;
534 L^W OF PLEDGES.
case, that the mere deposit of promissory notes hy a holder, before

maturity, with a creditor, without indorsement, as collateral secu-
rity, willnot divest the pledgor of his legal ownership, hut will
only vest in the creditor, as pledgee, a contingent equitable interest
in the notes, or the proceeds thereof, in case the debt should not be
paid, subject to a prior equity then existing in favor of the maker _
against the pledgor {Snow v. Fowrth, etc., Bank, 7 Hoi. R., 479).
It was declared by Edmonds, Circuit Judge, that the difference
between a mortgage and a pledge, as to matter of right, is, that in
the one case the title passes, and in the other it does not but that ;
the differeiice, in substance and fact, is, that in the case of a pawn
the possession of the article must pass out of the pawnor ; in the
case of a mortgage, it need not. And in determining whether an
agreement is a pledge or a mortgage, regard must be had to these
two considerations. The mortgagee takes the legal title. In the
case of a pledge, however, it is different ; the legal title, until a
sale in default of payment or redemption, continues in the pledgor

{HasJcms v. Patterson, 1 Edm. N. Y. Select Cases, 201).
The legal title to the property pledged always remains in the
pledgor until it is extinguished by proceedings taken by the pledgee
but from the fact that the possession must be in the pledgee, at
common law goods pledged were not liable to be taken in execu-
tion in an action against the pledgor until an extinguishment of
the pledgee's title, which is a special property in the thing pledged.-
Recognizing the general property in the pledgor of the thing

pledged, the legislatures of several of the States have passed statutes
to enable the creditor of the pledgor to reach his interest by execu-
tion, provided such interest may be sold on execution, or provided
the articles pledged are of the character that may
be reached by
execution. Thus the Revised Statutes of the State of New York
provide that " when goods or chattels shall be pledged for the
payment of money or the performance of any contract or agree-

ment, the right and interest in such goods of the person making
such pledge may be on execution against him, and the pur-
sold
chaser shall acquire all the right and interest of the defendant, and
shall be entitled to the possession of such goods and chattels on
complying with the terms and conditions of the pledge" (2 B. S.,
366, § 20 2 Stat, at large, 3Y9).
;
The old Supreme Court of the State of New York held that the
words "right and interest" of the pledgor, used in the statute,

THE TITLE OF THE PLED O OR. 535
were equivalent to -pronouncing the title of the pledgor in the

thing pledged " personal property," or rather that the term "êV--
gmal property ^^ would include the ''right wad mterest" which
the pledgor has in the thing pledged. And hence, it was held
that the sheriff, holding an execution against a pledgor, may, by
virtue thereof, take the property pledged out of the possession of
the pledgee into his own possession, and sell the right and interest
of the pledgor therein ; but that after the sale by the ofScer in such
a ease, the pledgee is entitled to the possession of the property
until it from the pledgee.
the purchaser redeems The judgment
of the Supreme Court holding this doctrine was affirmed by the
Court of Appeals of the State, the judges being equally divided
upon the question. was contended, on the argument of the case
It
in the Court on the one side, that the statute,
of Appeals,
which has changed the common law, and authorizes the sale of the
interest of the pledgor in the property pledged, does not authorize
the removal of the property out of the possession of the pledgee.
That the provisions of the statute, taken together, negative, by
implication at least, if not expressly, the right of the officer or of
any other person to remove the pledge from the possession of the
pledgee. At all events, it was argued that the statute contains no
authority for the officer having the execution to take the goods
pledged into his own possession, or to do any other act in respect
thereto than to dispose of the same by sale that the sheriff, by
;
the levy, acquiresno other right in the goods pledged than that
which at the time remained in the pledgor, and as the pledgor
clearly had not the right to the possession himself, and could not
legally interfere with the possession of the pledgee, so the sheriff, by

his levy, acquired no such right. It was further argued that an
actual taking and removal of the pledge was not a necessary inci-
dent to a sale thereof by the sheriff ; or, in other words, that the
right to sell, given by the statute, did not imply a right to remove
and that the gale might be effected without an actual interference
with the pledgee's possession. And it was finally urged, in support
of this view, that the rights of the pledgee are as important as those
of the judgment creditor that they are also prior in point of time,
;
and both should be respected and that such a construction should

;
he given to the statute as will enable the creditor to reach the

mterest of the pledgor without essentially impairing the right of
the pledgee under his contract. On the contrary, it was argued
536 I^-AW OF PLEDGES.
that the statute subjects the sale of pledged goods, by appropriate

language, to the same regulations which prevail in other caseB.
And by one section of the statute it is declared " that no personal
property shall be exposed for sale by the sheriff unless the same be
present and within the view of those attending the sale " (2 R. S.,
366, § 23 ; 2 Stat, at La/rge, 380). It was said, therefore, that the
sheriff naust have power to take the goods into his custody because ;
without it he cannot produce the goods at the sale. It was thought

that it could not urged that the officer may discharge
be, seriously
his duty, without a levy,by advertising the goods to be sold on the

premises of the pledgee for the purpose of having them within the
view of the bidders there, while the goods may be removed at the
pleasure of the pledgee beyond the reach of the sheriff or pur-
chaser. And, moreover, it was argued, if the statute gives the
sheriff no authority to take the goods for the purpose of a sale, it
gives him, none to enter on the pledgee's premises for that pur-
pose for the sale may as well be anywhere else as there, unless it
;
be in connection with the power to exhibit the goods to the per-

sons attending: the sale. It was also argued that there might be a
*
collusive understanding between the pledgor and pledgee of pro-

perty not having a uniform quality and value in the market, to
keep the articles concealed, while the execution creditor could
have no hopes of selling the goods for their value unless they
were exhibited at the sale, or in some way submitted to the exami-
nation of the purchasers. And where there was no such collusion,
that the sale without viewing the goods would be oppressive and
injurious both to the pledgor and the execution creditor that the ;
removal or concealment of the goods by the pledgee- would give

him an advantage at the sale over all others, and would enable him
to buy at the sale at a merely nominal price. Again, it was said,
it may be necessary in the case of goods pledged to have them

produced at the sale for the purpose of sellingj in lots or parcels,
according to the terms of the statute; for it may frequently happen

that the sale of a part of the goods, if they are in view of the
buyers, may be sufficient to satisfy the pledge; and in such case
the residue should be divided and sold, in the ordinary way. The
purchaser oiight, moreover, to have the opportunity at the sale of
complying with the terms and conditions of the pledge, and or

taking possession of the property. This just advantage he loses if'
the goods are not produced.
THE TITLE OF THE PLEDGOR. 537
It was prevention of frauds, and the pro^

finally urged, that the
tection of the rights of the creditors of the pawnor of goods,
sould not have been eflfectually accomplished in any other way

tkan by subjecting sales, such as that in question,, toi the same regu-
lations as exist in other cases of personal property ; that it was
Bot to be presumed that the power of the ofiieer will be exercised
oppressively ; that the possession of the pledgee will seldom be
Mtnally disturljed; and that if it be interrupted the interference
willcommonly lead to the satisfaction of the pledge. But if it
should not, it was addedj the probable injury to the pawnee of the
goods is, not to be compared with the evil which is likely to result
from a sacrifice of the. value of thor goods by a sale at whicb the
purchaser cannot know the quality or value of the article hebuysji
or where to find it when bought.
These two general processes of reasoning were severally con-
curred in by an equal number of the judges of the Court of
Appeals, so that the judgment of the Supreme Court, deciding;
that the sheriff in such a case may, by virtue of an execution
against the pledgor, take the property out of the hands of the
pledgee into "his own
possession, and sell the right and interest of
the pledgor therein, was affirmed, and so the law ren\ains to the
present day {Stiefy. JSmt,! JV. Y. B., 20), This is an important
dwsion in respect to the interest of the pledgor in the property
pledged, under the etatufes of New York, and is interesting in its:
application there,, and also in many other States having similar
statutes -upon the same subject.
The term pledge, applied to. chattels in its strict sense, denotes a
bailment or actual delivery of goods by a debtor to his creditor,
to be kept by him till the debt is discharged. It is a delivery of
a thing for the security of some engagement, and the legal title
and general property therein continue in the pledgor ; and' in
this it is from a- mortgage, which is a grant or con-
distinguished
veyance of the goods, and by it. the whole legal title passes condi-
tionally to the mortgagee. Ple,dge, in its proper sense, when
applied to goods,. does not' comprehend a mortgage; but the
reverse is not qpite true, fqr a mortgage of goods is a pledge and:
more, for it is an. absolute pledge, to becom.e an absolute interest;
if not redeemed at the specified time. The distinction is very
exactly given in the works on Bailment, and is quite familiar to
the profession. The old Supreme Court, of the. State of New
68
; '
538 LAW OF PLEDGES.
York, in tlie examination of the same question presented in the

case of Stiefv. Hart (1 If. Y. It., 20), remarked : "The general-
property of the goods remains in the pledgor, and the goods are
sold subject to the lien. * * * The intention of the statute
seems to have been that the sheriff should seize and detain the
goods in the same manner as if they were not under pledge ; and
put them up at auction as he must other goods. The only differ-
ence is that, in cases of pledge, he must sell subject to the hen.

He should have the goods present, and hold them in custody of
the law to await a redemption by the purchaser. If they are not
if redeemable, and they are not redeemed
reideemable presently, or,
presently, he should then deliver them into the custody of the
pledgee, to whom the purchaser must look for them. In short,
the statute intended, as it declares, to vest in the purchaser the
precise right of the pledgor. It is essential to the right of all
concerned, that the property should be subject to the view of the

purchasers. The common-law disability of the sheriff to seize
goods in pledge is His right to take and hold them
removed.
pro hoc vice arises by necessary implication from the two sections
cited. "Where the law gives a man anything, it gives him the
means of obtaining it '\Bakewell v. EUsworih., 6 HilVs R., 484r-
486). If the pawnor has only a limited title to the thing, as for
life or for years, he may still pawn it to the extent of his title
but when that expires, the pawnee must surrender it to the

person who succeeds to the ownership, although the pawnee had
no notice that the pawnor was not the absolute owner {Howe v.
'
Pa/rk&r, 2 T. R., 376). In such case, the pawnor retains the title
to the property, such as it was, subject simply to the terms of the
pledge, and the rights of the pledgee.
The English Court of' King's Bench declared that, where a
hroker pledges the goods of his principal as his own, the pawnee
who claims by such tortious act of the broker, cannot claim to
retain against the principal in trover for the amount of the lien
which the broker had on the goods for his general balance at the
time of such pledge. But it was intimated that the rule would
be otherwise where one who has a lien delivers the goods to a
third person as security, with notice of the lien, and appoints him to
continue his possession as his servant for the preservation of his lien.
Lord Ellenborough, C. J., said that nothing could be clearer
than that liens were personal, and could not be transferred to third
THE TITLE OF TBE PLEDBOS. 539
persons by any tortious pledge of the principal's goods ; that,
whether or not, a lien might follow goods in the hands of a third

person, to whom it was delivered orer by the party having the
lien, purporting to transfer his right of lien to the other, as his
servant and in his name, and as a continuance, in effect, of his
own was quite clear that a lien could not he trans-
possession, yet it
ferred by the tortious act of a broker 'pledging the goods of his
principal, which he had. no authority to do.
His lordship then made some other remarks, of which the

reporter gives the substance, when he consulted with the other
judge and declared that the rest of the court coincided with him
in opinion that nowas transferred by the pledge of the broker
lien
in the case at bar, and added that he would have it fully under-
stood that his observations were applied to a to?*fo'o«s transfer of the

goods of the principal by the broker undertaking to pledge them
as his own, and not to a case of one who, intending to give a
security to another to the extent of his lien, delivers over the
actual possession of goods, on which he has the lien, to that other,
with notice of his lien,and appoints that other as his servant to

keep possession of the goods for him, in which case he might pre-
serve the lien {MoGomlie v. Da/vies, 7 jEasfs R., 5). And this is
in accordance with other authorities upon the same sabjeet
( Vide
Urquhwrt v. Mclver, i Johns. R., 103)

If the party who has pledged the goods was not the owner of
them, the pawnee will not be justified in delivering them to the
true owner, if the pledgor has a special property in them, which
he is entitled, under the circumstances, to assert against the true
owner. This doctrine recognizes the principle extracted from the
authorities by Judge Story, that the pledgor may convey his interest
in the thing pledged conditionally, by way of pawn, to another
person, without destroying his security ( Vide Story on Bailm.,
§ 324). And if the pledgor holds the pledge merely as a pledge

from the owner, the second pledgee may discharge himself from
any obligation to the owner by delivering it up to his own pledgee
at any time before the offer to redeem be made by the owner.
If a clause is inserted in the original contract, providing that, if

the terms of the contract are not strictly fulfilled at the time and
in the mode prescribed, the pledge shall be irredeemable, such
clause will not be of any avail, for the common law deems such a
Btipulation unconscionable, on the ground of public policy, as tendc
; -
5-40 i-<lJr OF .PLMDQES.
ing to the oppression of debtors. This is the doctrine laid down

by Story, and it is sustained by express authority {Story on Bailm.,
§ 346). And it seems that the pledgor does not forfeit the general
property he has in the thing pledged by neglecting to pay the
debt, or perform the act at the time stipulated in the contract
thatis to say, by the neglect of the pawnor to pay the debt or
perform the obligation for which the pledge is given to secure,

within the stipulated time, the absolute property'in the pledge
does not, thereby, pass from the pawnor to- the pawnee. This
doctrine is said to be, at least, as old as the- time of Glanville.
And it is added by Story that' if the pawnee does not choose to
exercise his acknowledged right to he still retains the property

sell,
as a pledge ; and, upon a tender of the debt, he may be compelled

to restore it {Story on Bailm., § 346 and vide Glamnlh,M. 10,;
eh. 16 ; 1 Me&ues, 161, 163). This is the rule, provided the matter
is not allowed to sleep, until the presumption may be reasonably
indulged that the pledgor does not design to redeem the property
pledged, when his right may be deemed to be extinguished and the
title of the pledgee to be absolute ; that is to say, under such cir-
cumstances a court of equity might decline to interfere "for the

relief of the pledgor.
In a case where the assignee of a bankrupt brought a bill for
the redelivery of jewels pledged by the bankrupt^ on payment of

the sum due upon them, was held that where no time was given
it
for redemption, the pawnor might redeem during life, if the

pawnee had not exercised his right to sell. And in the same case
it was also held that the statute of limitations was no bar to the
demand ; or, in other words, that the statute of limitations would

not run against such a demand {Kemp v. Wesibrook, 1 Yes. R.,
278). But this subject will be more appropriately treated in a
subsequent chapter. The Eoman law, it seems, allowed the par-

ties to a pledge to agree that, upon default in payment, the credi-
tor should be at liberty to take the thing pledged at a stipulated

price,provided it was its reasonable value and the transaction
was hona fide ; and the modern continental nations of Europe
have adopted the same or a similar rule. Whether the same prin-
ciple exists in the common law, Story says does not appear to have
been decided. But he thinks there is nO doubt that a subsequent
agreement to that effect, or a subsequent waiver of the right to
redeem, if made under proper circumstances, would be held bind-
THE OBLIGATIONS OF TWE PLEDGOR 541
ing between the parties ; and as authority for his opinion he cites
the case of Stevens v. Bell (6 Mass. R., 339), decided many years
ago {Story on ôifo?,., § 345).
In respect to the obligations of the pledgor, it may be affirmed

that by the he impliedly engages that he is the
act of pledging
owner of the property pledged and, when the ownership of any
;
part of it is not in him, he is liable to the pledgee in damages, if

by reason of defective title it is taken from him {Maws v. Taylor^
40 Pmm.. R., 446). This doctrine would not, however, apply in
its full effect where the pledgor had only a special property in the
article pledged, and gave notice to the pledgee of the extent of
the interest Ayhich he claimed in the property pawned. But where
no notice is given of a different interest, the pledgor enters into an
implied warranty that he is the general owner of the property
pledged ; and in all cases he impliedly undertakes that he has
. good right to pass the pawn. And if he violates this engagement,
either by a tortious or by an innocent bailment of property which
JB not his own, or by exceedimg his interest therein, he is lia
ble to the pawnor in an action for damages {Madrs v. Taylor^
swpra; Story on JBo/ilm., § 354, am,d authority cited). It is
obvious from this doctrine that the pawnor is also under an implied
engagement not to interfere with the property pledged, nor do
any act which shall impair the rights of the pledgee, until the
pledge is redeemed or extinguished.
Judge Story quotes the substance of a passage from Pothier, to
the effect that if the pawn has a defect, unknown to the pawnee,
which destroys its value, the French law gives him a right of action
for another pawn in its stead {Pothier, de NamtAssement, n. 54).
And the learned author adds " This seems highly reasonable the
: ;
common law, however, does not give any such right. But in such
a ease an action will lie at common law against the pawnor, upon
his implied engagement or warranty of and, a fortiori, if title ;
fraud is practiced damages wiU doubt-

by the pawnor, an action for
less lie against him. Perhaps, also, the whole contract may, under
such circumstances, at the option of the pawnee, be rescinded by
a court of equity. The pawnee indeed is, in all cases of this sort,
bound to good faith, and is responsible for all frauds, not only ia
the title, but in the concoction of the contract {Pothier, de Wan-
Hssement, n. 59). Thus, if he should fraudulently nfiisrepresent the
nature or quality of the thing pledged, as, for example, if he should
;
542 I'^^ OF PLEDGES.
»)ledge a vase of brass, asserting it to be gold, lie would be liable

therefor ; for it is a rule of the common law that fraud vitiates
every contract; and damages, by way of recompense, may be
recovered for all injuries occasioned by fraud. The like rule prevails
in the Eoman law ; and, indeed, fraud is denounced therein with
studied reprobation, * * * But, whenever there is a deifect in
the pawn, or in the no pretense to impute fraud,

title to it, there is
if the, pawnee takes it with fell knowledge of all the circumstances,

for he is then bound by his contract, as he Las chosen to make it
and, volenti non jit injuria. The Koman law has promulgated
the like doctrine. * * * The same doctrine is also fully recog-
nized in the French law " {Story on Bailm., %% S55, 356): And it
may be suggested that these general principles are elementary,
and are quite familiar to the profession ,'
and they are as appli-
cable in cases of contracts of pledge as in others where they are

uniformly applied.
Another principle may be stated upon authority and that is, ;;
that a party who pledges to another goods which he does not own,
and at the same time makes delivery of them, is estopped from
setting up a title to the goods subsequently acquired during the
existence o^ the pledge ; and the pledgee in such case may recover
possession of them as against him or any party possessed of them
without right {Ooldstein v. Hart, 30 Cal. R., 372).
Another obligation of the pledgor, by the Eoman law, is to
reimburse to the pawnee all expenses and charges which have been
necessarily incurred by the latter in the preservation of the pawn,
even though, by some subsequent accident, these expenses and
diarges may not have secured any permanent benefit to. the pledgor.
This is the doctrine of the Roman law, as understood by Judge
Story, though he finds no decision in the common law upon the
point. He aflSrms, however, that if there is an express ecmtract to
pay such expenses, such contract doubtless ought to govern the case.
And where the circumstances of the case naturally lead to an
implied agreement to the same effect, it will be equivalent to an
express declaration of a similar import. But the learned author on
Bailments adds, whatever may be the rule as to ordinary expenses
and charges in a case of mutual silence, it seems but reasonable
that extraordinary expenses and charges, which could not have been
foreseen, should be reimbursed by the pledgor. If (he supposes)
a horse is pawned, and meets with an injury by accident, the
THE OB LIBATIONS OF THE PLEDGOR 543
expenses of Ms cure, he very justly thinks, would be chargeable

upon the pledgor, because incurred for his ultimate benefit. So,
he affirms upon authority, if a ship, which is pledged, is injured by
a storm, and expenses are necessary to preserve her from absolute
foundering, such expenses seem properly to fall on the owner
{Story on BaUm., § 367).
In respect to the necessary expenses incurred in the preserva-
tion and care of the thing pledged, it is very clear that they would
be covered by the pledge, and the pledgor would not be entitled to
a return of. the property until it was redeemed, not only from the
original debt or obligation it was given to secure, but the expenses
incident to the pledge. And, perhaps, on this principle, the pledgor

might be made personally liable to pay such necessary expenses,
provided the pledge was not sufficient to reimburse the pledgee for
the expenses incurred.
When the expenses incurred in relation to the pledge are not
necessary, but still are useful, to the thing preserved, it seems that
the Eoman law pursued a middle course, and left them to be allowed
or disallowed by the proper tribunal, according to circumstances.
If the expenses were very large and onerous, they were not to be
allowed. If moderate and beneficial, they might be allowed at the
discretion of the court {PotMer, de Wantissement, n. 61 ; Dig.
M)., 13, tit. T, J. 25 ; 1 Domat, i. 3, 20 ; Ayliffe, Pand.,
Ut. 1, § 3, n.
I. i, tit. 18, pp. 530, 531). But, in the language of Judge Story,
the common law has not invested courts of justice with any such
discretion, without the approbation of the pawnee, either express,
or implied.
In respect to voluntary deposits, the depositary is generally

entitled to be reimbursed all the necessary expenses to which he
has been subjected for the preservation of the deposit; and by
the laws of some countries, the depositary has a lien for. all such
expenses upon the thing in deposit. And upon the same princi-
ple, it would at least seem reasonable that the pledgor of pro-
perty should be made liable to pay for necessary expenses incurred

by the pledgee in and about the property pledged. In some eases,
the owner has been held to be personally liable to reimburse a
party for services and expense incurred in taking care of his pro-
perty, where the person who performed the service or incurred
the expense would have no lien upon the property itself for the
charges. Where a quantity of timber, placed in a dock on the bank
544 LAW Of PLED&B8.
of a navigable river, was accidentally loosened and carried by the

tide to a considerable distance, and left at low water upon a tow-
ing-path, a party finding it in that situation voluntarily conveyed
it to a place of beyond the reach of tide at high water,
safety,
the Coiiirt of Common Pleas of England held that the party had
no lien on the timber for the trouble and expense to which he mav
have put himself in the carriage of it. But the court intimated
a very decided opinion that, in such a ease, the party might main-
tain an action against the owner for a compensation {NicJiolson v.
Cha^pmcm, 2 H. Blcick. M., 254). This is a good office, and meri-

torious of itself, and would seem to entitle the party to some
reasonable recompense from the bounty, if not from the jiistice of
the owner ; yet the legality of the claim is not so apparent as in
the case of necessary expenditures by the pledgee in and about

the property in pledge, so long as it is properly retained by him.
So that it may very safely be affirmed that this is among the
obligations of the pledgor by reason of the contract of pledge.
The principle may be regarded as pertinent to the point, that any
one who has adopted and enjoyed the benefit of a consideration,
is held to have impliedly promised to have requested and pro-
vided in due form {Tide Lamvpleigh v. Braithwcdte, Hobarfg
R., 105 ; 1 SmitKs Lead. Cases, ?>ih ed., 135).
CHAPTEE XLII.
THE EIGHTS OF THE PAWNOR OK PLEDGOE IN EE8PECT TO THE PEO-

PEETY PLEDGED THE PLEDGOe's EIGHT TO TEANSFEE HIS INTEREST
IN THE THING PLEDGED HIS EIGHT TO EEDEEM THE ARTICLE
PLEDGED —
THE EXTINGUISHMENT OF THE CONTRACT OF PLEDGE.
In respect to the rights of the pledgor of the property pledged,

it may beaffirmed, in the first place, that he may sell or assign his
interest in the pawn and in such case the vendee or assignee will
;
be substituted for the pledgor, and the pledgee will be obliged to

allow him to redeem and to account with him for the pledge and
its proceeds. If he refuses to recognize the rights of the vendee
or assignee of the pledgor, an action at law will lie for damages,
TBE BIOMti OF TBS PLEDGOR. 545
or a bill in equity will be sustained to compel a redemption and

iKjcount {SUyi^ on Bailm., % 350). This doctrine is well settled by
a large number of authorities.
In the State of South Carolina, the coarts held, at an early day,

that if the pawnor sell the property to a third person
while it is
in thepawnee's hands, and the pawnee refuse to give it up to. the

vendee on being tendered the amount of the debt for which it
was pledged, the vendee may maintain trover against him {Bat-
cliff V. Yance, 2 Const. Ct. B., 239). And the same principle
was recognized in an early case before the old Supreme Court of
the State of New York; wherein it was held that, to warrant
trover, the plaintiff must show a present right of possession in the

chattel ; and if it appear to have been pledged by the plaintiff's
vendor, before the sale, in order to secure a debt or dnty to^ a third
person, the plaintiff cannot recover unless he show such debt or
duty to have been discharged, or that the operation of the pledge
has ceased in some other way ; obviouisly approving the doctrine,
that it is competent for the pledgor to dispose of his general pro-
perty in the thing pledged, when the vendee will stand iffl! the
tracks of bis vendor before the sale, and must take the same
measures to avail himself of the benefit of the residuary interest
of the pledgor in the thing pledged {Bush y. Lyon, 9 Cow. B., 52).
A comparatively late caise in the State of Kentucky illustrates
the same doctrine. A. pledged to B.. certain bills of exchange for
his indemnity, and afterward miortgaged the same bills of exehange,
together with other property, to G. ; the court held that an assign-
ment was not necessary to constitute a valid pledge, and that th©
only interest transferred to the mortgagee was the surplus remain-
ing .after B.'s claim was satisfied ; conceding, however, that it was
competent for the pledgor to mortgage the articles pledged^ sub-
ject to the rights of the pledgee {Sanders v. Daois), 13 B. Mon.
R., 432).
In an early case before the Supreme Jndicial Court of Massa-

chusetts it was held, where a mare in: the stable of A., who had a
lien for her keeping, was sold to B., and the vendor and B. wrote
to inform A., of the sale, who thiereupott held himself ready to
deliver her to B., that the sale was valid, even as against an attach-
ment by the vendor's creditor {Trmsworth v. Moore, 9 Pick. B.,
347).
• Where a stranger comes into possession of the |)roperty pledged.

;
546 LAW OP PLEDGES.
under a wrongM title from the pawnee, the owner has a right to
consider the contract at an end for many purposes, and may there-
fore recover against the stranger, and hold him liable for damages
(Vide Martini v. Coles, 1 Mcmle c& Seha. JR., 140). But where
there is an injury or conversion to or of the article pledged, by a
stranger, for which an action lies both by the pledgor and pledgee,
a recovery by either of them will oust the other of his right to
recover; for there cannot be a double satisfaction. This is true ae
a general rule. But Judge Story very properly suggests that it
deserves consideration whether the owner can, by his recovery of
the pledge itself, or of damages for the conversion of it, against a
stranger, oust the pledgee of his security in the pledge or its pro-
ceeds. And if the pledgee has recovered damages against a stran-
ger only to the extent of his own lien, the learned judge suggests
that it may
further deserve consideration whether, upon suitable
proofs, the owner may not also be entitled to recover for the sur-
plus. However, he add§, .these are propounded merely as matters
open to further inquiry but there would seem to be but little
;
doubt as to the inclination of the learned authqr upon the subject,

nor as to what will be the decision of the courts in respect to the
matter whenever the question shall be properly presented {Story
on Bail/m., § 352).
It may be affirmed in the second place, in respect to the rights
of the pledgor, that he may redeem the property pledged and ;
inasmuch as he has never parted with the general title, he may at

Imiy redeem, even though he has not strictly complied with the
condition of his contract of pledge. And it was expressly held by
the English Court of Chancery, at a very early day, that where no
time is given or specified for the redemption of the article pledged^
the statute of limitations does not run against the pledgor, and
he has time during life to redeem the property pledged, provided
the pledgee has not in the meantime exercised his right to sell the
pledge or foreclose the rights of the pledgor to redeem. The lord

chancellor said " It is something like the case of a remainder,
:
man, expectant on an estate for life or years, to whom a right to

enter or bring an ejectment is given by the forfeiture of the tenant
for life or years, yet he is not bound to do so ; therefore, if he
comes within his time after the remainder attached, it will be good
nor can the statute of limitations be insisted on against him for
pot coming within twenty years after his title accrued by forfeiture.
THE BiaSTS OF THE PLEDGOR. 547
I will not say in general that there is a right to come into equity
inevery case to redeem pledged goods, yet there are cases where it
may he " {Kemp v. Westbro'oh, 1 Yes. H., 278). And the American
(lases same purport. The late Chancellor Kent, the
are to the
learned American commentator, many years ago laid down the
rule that, where no time is fixed for redeeming a pledge, the
pawnor may redeem at any time and further, that the right of
;
redemption survives on the death of the pledgor to his legal repre-

sentatives against the pawnee and his representatives ; declaring,
however, that the pawnee may acquire absolute property in the
pledge by requiring the pawnor to redeem and by his refusal {Cor-
tdyou V. Lansing, 2 Game's Oases in Er., 200).
And the Supreme Court of Mississippi, at an early day, recog-
nized the same doctrine, holding that, where no time is mentioned,
the pawnor has his lifetime to redeem in, unless the pawnee hasten
the time by request but that if, after request by the pawnee, the
;
pawnor neglect to redeem in a reasonable time, the pawnee may

sell the pledge. (Perry v. OraJig, 3 Miss. R., 516). And
Judge Story, referring to this subject, observes :
" If the pawnee
does not choose to exercise his acknowledged right to sell, he still
retains the property as a pledge, and, upon a tender of the debt, he

may at any time be compelled to restore it ; for prescription or the
statute of limitations does not run against However, after a
it.
long lapse of time, if no claim for redemption

made, the right is
will be deemed extinguished, and the property will be held to
belong absolutely to the pawnee. Under such circumstances, a

court of equity will decline to entertain any suit for the purpose of
a redemption. A like rule is adopted in the common law in cases

of mortgages " {Story on Baihn., § 346, referring to Zockwood V.
Ewen, 2 Ath. R., 303 Mathews on Premrryptim Evidence, 20,

;
331 Powdl on Mortgages, Coventry dh Rand's ed., Coventry's

;
note, 401).
After " a long lapse of time," the authorities declare ; and, as has
been pertinently remarked, the term " a long lapse of time " is too
uncertain to be of much practical value as a guide to pawnees who
may wish to realize their security. And as the pawnee cannot be
a purchaser, the long lapse of time referred to may not justify a
sale of the property pledged without notice to the pledgor or his
representatives. For without such notice, the pawnor does not
.lose his right to redeem eyen after the "lapse of p. long time,'^
548 LAW OF PLEDGES.
unless at the time ofmaking the contract of pledge the time was
fixed or some act agreed upon, by the lapse or performance of
which he was to be taken to have surrendered his right. The true
rule upon the subject is doubtless laid down by Story, when he
says :
" The Koman law also has declared that prescription shall
not run against the pawnee in respect to the pawnor, for the
pawnee is always considered to hold his title as such until some
other title supervenes. * Jfemmem sibi vpswrn, ccmsampossessionis
muta/re posse.'' But, nevertheless, where the title of the pawnee

has remained undisturbed for a great length of time, it seems that
such an extraordinary prescription may be insisted on as a bar for
the sake of the repose of titles founded on long possession. But

where no time of redemption is fixed by the contract, then upon
general principles of law the pawnor has his whole life to redeem,
unless he is previously quickened, as he may be, by the pawnee,
through the instrumentality of a court of equity, or by notice in
pais to the party " {Story on Baihn., §§ 347, 348).
With respect to the question whether the right of the pledgor to
redeem the pledge survives in case of his death, there have been
authorities both ways; some holding that the right to redeem
expired with the pawnor's life; others deciding that, if the pawnor
dies without redeeming the pledge, the right to redeem survives to
his personal representatives. The better opinion seems to be, that
the right survives in case of the death of the pawnor, and that the
right may be enforced by his personal representatives ; and such is
the current of the later authorities {Yide Demcmdray v. Mekdf,

Free. Ch., 420 ; Ycmdersee v. Willis, 3 Bro. Cfh. R., 21). The
pledgor does not, clearly, lose his right to redeem the pledge by
the death of the pledgee ; in case of the death of the pledgee, the
pledgor may redeem the pledge against his personal representatives

{Com. Dig., tit. Mortgage, B).
Upon this subject it is said, in Bacon's Abridgment :' " There is
a great difference between a pawn and a mortgage of lands ; for if
goods be pawned without mention of time for redemption, they

may be redeemed after the death of the pawnbroker; * * * when
goods are pawned, the pawnbroker hath but a qualified property;
the absolute ownership is in the person that deposits them and ;
this
property cannot be extended beyond the intent for which it was
created, and that is only for securing the money lent ; for should
the property be thus extended, it would be to the injury of him

THE BIGHTS OF THE PLEDGOR. 549
that has the absoluteownership. Now, the intent of the parties in

not limiting a time of redemption was plainly in ease of the
pledgor, and therefore the time of redemption must be during his
life and he cannot be confined to the life of the pawnbroker, for

;
that might fall more to tbe disadvantage of the person pledging

than if a time had been limited ; and there are no absolute words
to evidence such a rigorous construction, contrary to the design of
the parties ; but if the pledgor doth not redeem during his own
life, his executors cannot redeem, for then the words and intent
both agree to make an absolute property to the pawnbroker"
(Bog. Ah"., tit. Bailment, B). This is regarded, in the main, as
trtiBtworthy authority ; but the last clause in the paragraph quoted
is not generally followed at the present day.
Where there is a specified time, by the contract, in which the
redemption is to be made, the same authority lays down a different
rule. He says :
" But if time be set for the redemption of a pledge,
and before the time the pledgor dies, his executors may redeem it,
and it shall be assets in their hands ; for when there is a time lim-
ited, then by the express words the party hath till the time
appointed ; and the time appointed is indefinite, and not during
the life of the pledgor, and, therefore, if he dies, his executors
shall redeem; and, therefore, the death of either party cannot
prejudice" {Boo. Abr., Ut. Bailmmt, B).
A case was decided by Lord Hardwicke, in 1745, wherein he
held that a deposit of chattels, as a pledge, upon condition not to
sell them until failure of payment on a certain day, was a trans-
action that might be affected by the statutes of limitation {Gage v.
Bulkdey, Ridg. Gases Temp., Ha/rdnoicke, 278). But where there
is no certain day for redemption, and the pawn remains with the
pawnee, then, as before stated, the statute would not operate ; and
yet, ui that case, evidence in support of the presumption that the
pawnor had abandoned his right to the pawn might, nevertheless,
be given.
Judge Story observes that " the pledgor is not ordinarily barred
of his right to redeem the pledge, so long as the pledgee may be
presumed to hold it as a pledge. * * * If a very long period
has elapsed, and the pledge has continued in the possession of the
pledgee, it affords a presumption of the abandonment of it by the
pledgor ; and if any presumption of an extinguishment of the debt
550 JÂW OF PLJEDGES.
arises in such case, it is an extinguishment by receiving tlie pledge

in satisfaction" {Story on Bailm., §362).
The following case of considerable interest came before the
Supreme Court of the State of Vermont, involving the right of a
pawnor to redeem the article pawned: E., for himself and P.,
contracted with F. for the occupation of certain premises owned
by F., and gave to him a written agreement to cut the hay on the
premises, put it in a barn there, and that it should remain F.'s
property ; but if E. should pay F. twelve dollars before October 1,
then the hay was to become the property of E. The court held
that the transaction was a pledge of the hay to secure the twelve
dollars, and that E. and P. had a right to redeem until F. had
proceeded in chancery to foreclose, or had sold the hay in the
manner prescribed by law. The court further held that the assignee
of F., who took the hay with notice that E. had some right to it,
was put upon inquiry, and would have found, if he had inquired,
that P. was jointly interested. Therefore, P. had a right peace-
ably to take the hay from the assignee's possession, after tendering
him what remained unpaid of the sum secured by the pledge (Tag-
g<wt V. Paoka/rd, 39 Vt. E., 628).
In this connection, it may be regarded as cognate to the subject
of this chapter to examine, in the third place, the manner in which
the contract of pledge may be extinguished. And here, little else
is necessary but to insert the substance of what Judge Story has

compiled from the elementary treatises upon the subject, and pub-
lished in his excellent Commentaries on the Law of Bailments.
The points are giren by him, and presented in a very few sentences,
from which it appears that an extinguishment of a pawn or pledge
may arise in several ways.
1. The pledge may be extinguished by the full payment of
the debt, or the discharge of the other engagements, for which the
pledge was given. For this he cites 1 Domat, h. 3, Ut. 1, § 7,
art. 1 ; Pothier, Pond., Wb. 20, tit. 6, § 1, I. 1-5 ; Ayliffe, Pmd.,

4, ch. 18, pp. 536, 537.
'J. Si dominus solverit peouniam, pignus
quoque pervmitur. Dig. 13, § 2.
lib. 20, And_ to this it
tit, 1, 1.
may be addeid, that the courts have held that the lien of a pledge
is destroyed by a tender of the amount due which the pledge
was made to secure. This was so declared in a recent case decided
by the Superior Court of the pity, of New York.
Eobertson, J., who delivered the opinion of the court, among
THE MXTINOUISHMENT OF TMM PLEDGE. 551
other things said :

" It was finally settled in Koriîght v. Cody
(21 N. T. Hep., 343), in the Court of Appeals,
that a tender of an
amount due on a mortgage

. on 'land, even after the law-day, if
refused, destroyed the lien of it on the land. By giving the
mortgagor the right to redeem, by rendering him only liable for
the amount to be paid, in case of his conversion of the property,

and mating the mortgagee liable for any sales beyond the amount
of his mortgage {Sinman v. Judson, Chenter v. Stevens, ubi sup.),
itwould seem to have become a mere security for money. It is
true that in the case of Butler v. Miller (1 Comst, 500), the judge
who delivered the opinion of the court notices the distinction

between mortgages of real and personal estate, and states that the
latter is a sale, and operates to transfer the whole legal title of the
thing mortgaged to the mortgagee, subject only to be defeated by

a full performance of the condition. It was not necessary for the
decision of that case ; due to even an oMter
but some respect is
dictum in the court of highest resort when relying on distinctions

so drawn. It has been held that, after forfeiture, no tender can
revest the title in the mortgagor, and even that acceptance of part
is no waiver {Patolvm y. Pierce, 12 Wend., 61). But there are
authorities to the Such
contrary {Jenkins v. Jones, 2 Gifford, 99).
distinction, however, between mortgages of real and personal
estate cannot prevail in case of a pledge, which is settled to be a
mere security, conferring only a special property in the property

pledged {Brownell v. Ha/whins, ubi sitp.), for any fall of value in
which, after a tender, the pledgee is responsible {Griswold v. Jack-
son, 2Sdw., 461), which would not be the case if a bill to redeem
were necessary. The interest of the pledgee is in fact a mere

lien, like amortgage of land, and should be relieved by the same
process. The reasoning in the case of Kortright v. Cady^ before
"
cited, is equally applicable to pledges, and must govern this case
{Haskins v. KeUy, 1 Rol. R., 160, 173, 174).
upon competerit authority, that the first
It thus clearly appears,
way assigned by Judge Story by which a contract of pledge may

be extinguished, should be amended so as to make it, that the
pledge may be extinguished by the full payment of the debt or a
tender of the arniownt due, or the discharge of the other engage-
ments, or an offer and readiness to disoha/rge the other engagements,
for which the pledge was given.
2. The- pledge may be extinguished by a satisfaction of the
;
552 LAW OF PLEBQES.
debt in any other mode, either in fact or by operation of law; as

for instance,by receiving other goods in pa;yment or discharge of
the debt. Item liheratur joignus, sive solutuTn, est dehitum, me
eo nomine satisfactv/m est. The authorities cited upon this point
by Judge Story are 1 Domat, K 3, tit. 1, § Y, a/rt. 4 Pothm;
: ;
Pand., lib. 20, tit. 6, § 4, 1. 17, 18 Ayliffe, Pand., h 4, tit. 18,

; .
pp. 536, 537 ; Dig., lib. 20, tit. 6, 1. 6.
3. The pledge may be extinguished by taking a higher or dif-
ferent security for the debt (as, for example, a bond or obligation
for a promissory note), without any agreement that the pledge
shall be retained therefor. This, in the Roman and foreign law,
is called a Novation; and, as the original debt is thereby
extinguished, the contract of pledge, which is but an accessory, is
also extinguished. Novata autem debiti obligatio pignus perimit

nisi convenit, ut pignus repetatwr. But as no revocation has
the efEect to extinguish a prior debt, unless such is the intention
of the parties, it follows that a mere change of the security will
not extinguish the right to the pledge, without the express or
implied assent of both parties. For authority on this point Judge
Story cites 1 DomM, b. 3, Ut. .7, § 7, art. 2, 4 ; lb., b. 4, iit.
3, § 1, wt. 1 to 5; Pothier, Pand., Ub. 20, tit. 6, § 1, 1. 6, 7

Aylife,Pand., J, 4, tit. 18, pp. 536, 537; Dig., Ub. B, tit. 7, I.
11, §1.
A case bearing upon this poiat may also be referred to, which
was by the Supreme Court of California.
lately decided Plain-
tifE and Templeton were severally creditors of Thompson, Tem-

pleton held certain goods of Thompson in pledge as security for
his indebtedness, the value of which exceeded the claims of both
Templeton and the plaintiff. Under these circumstances, an
arrangement was made between the plaintiff and Templeton, by
which the plaintiff guaranteed to Templeton the payment of his
debt, and received from him an assignment and the possession of
the goods, in pledge to secure the payment of the debts of both
plaintiff and Templeton. Thompson was not present at the time
of the arrangement between the plaintiffand Templeton, but
subsequently expressed his gratification at the arrangement. The
court held that Templeton lost his lien on the goods, as pledgee,
by surrendering them to plaintiff and taking his guarantee for his
debt {TreadweU v. Davis, 34 Cal. R., 601).
4. The pledge will be extuiguished by whatever, by operation
.TEE HXTIN&UISaMMNT OV THE PLEDGE. 553
jf law, For example, if the pledgee brings

extinguiBhes the debt.
^ suit for the debt against the pledgor, and the pledgor obtains a
judgment in his favor, in such a way as that it bars any future
recovery of the debt, that will extinguish the right of the pledge.
To this point, Judge Story cites : 1 Bomat, b. 3, tit. 7, § 1, a/rt.
3 ; Pothier, Pcmd., lib. 20, tit. 6, § 1, 1. 8.
6. If the. right to the debt is barred by prescription, it is said
in the Roman law that the right to the pledge is also gone (1
Bomat, b. 3, tit. 1, § 1, art. 9Pothier, Pamd., Mb. 20, tit.
;
6, § 5, I. 37-40). And Judge Story adds " This is equally :
true in the common from the length of time there

law, where,
arises a presumption of the payment or discharge of the debt. But
if there is merely a positive bar by the statute of limitations against
a personal action for the debt, it may deserve consideration, how

far this will oust the party of his right to retain the pledge towards
satisfaction of the debt for the possession of the pledge, may be
the very reason why the pledgee has omitted to bring a personal
suit for the debt within the prescribed time. * * * Atid the
continued possession of the pledgor, being founded upon the pre-
sumed consent of the pledgee, affords, under such circumstances
proof of the non-extinguishment of the debt, although the statute
of limitations may present a bar to a mere personal action. * * *
If, then, the statute of limitations has run against the debt as a
personal claim, and the pledgor seeks to recover back the pledge,
why may not the pledgor avail himself of the protection of the
same statute to bar ,such suit ? If the pledgor insist that it is still
a pledge, why may not the other party avail himself of all the fair
presumptions arising in the case that the debt has not been paid, or
that the pledge has been deemed a satisfaction of it ? Some of
the adjudged cases seem silently to admit the existence of a right
in the pledgor over the pledge, notwithstanding the lapse of a
period exceeding that of the statute of limitations for a personal
suit for the debt {Kemp v. Gage v.
Westbrooh, 1 Ves. E., 278 ;
Bmiey, Ridg. Gas. T&mp.

YeU. R., 178, 179). This^
Ha/rd., 278 ;
however, must be considered, in the absence of some direct authority,

as a point merely propounded for further consideration."
6. The pledge may be regarded as extinguished when the thing
perishes. Sicut re corporgli extincta', ita et resvfructu extincto,
pignus kt/pothecave perii, is the language of the Roman law. If
it undergoes any permanent and essential transmutation, it would
70
554 LAW OF PLEDGES.
seem, by the Roman law, that the right to it, tmder some circum-
stances, would be extinguished. For example, if a wood should be
delivered as a pledge, and a ship should be afterward built of the
trees, the ship would not be pledged, unless there was an express
stipulation that the trees, and whatever should be constructed out

of them, should be equally subject to the pledge. This example,
as suggested by Judge Story, ought not, perhaps, to be deemed
the foundation of any general rule, since, in the building of a ship,
various other materials besides the trees must have been used in
the construction. But this is the example used by the Roman law
to illustrate the rule {Dig., lib. 13, tit. 7, ch. 18, § 3).
Judge Story continues " Let us suppose a gold vase to be
:
pledged and then melted down into a bar of gold, or a bar of gold
to be wrought into a vase without the use of any other materials,
and the question might then present itself in a very different
aspect. However this may be, it seems certain that at the com-
mon law the pledge is not thereby extinguished {Pothier, Pand.,

Ub. 20, tit. 6, n. 12, 13 ; Domat, b. 3, ' Ut. 1, § Y, aH. 7; Ayliffe,
Pand., b. 4, tit. 18, j[yp. 536, 53T). As far as the property can be
traced it will still common law, whatever
be held as a pledge by the
transmutation may have undergone without the assent of the
it
pledgee" {Taylor v. Plumm, 3 Maule c& Seho., 562; Siory on

Agency, §§ 224, 229-231).
7. The pledge may also be extinguished by any act of the
pledgee which amounts to a release or waiver of the same. This
may be by a release, in solemn form, of the debt, or by any other
discharge of the right to the pledge. But a release of a part or
of an undivided portion of the things pawned will operate as an
extinguishment onlyô tanto {Pothier, Pcmd., Ub. 2, tit. 6 omd

4t, I. 14 ; Macomber v. Pa/rker, 14 Pick. R., 497, 507.)
If the pledgee yields up the possession of the pledge to the
pledgor, or consents that the latter shall alienate it or pledge it to
another person, either of these acts wiU amount to a waiver of

his right to the pledge. As authority for this last proposition.
Judge Story cites Homes v. Crane (2 Pidk. B., 607) Bunycm-^. ;
Meroereau (11 Johns. R., 589) Beeves v. Capper (5 Bimg. New ;
Cases, 136); Byall v. BoUe (1 Aik. B., 165.)

This summary embraces all the various ways, noticed by Judge
Story, by which a pledge may be extinguished ; and, doubtless, no
case could be supposed which could not be brought within one oi
,
TJSE EXTINQUISHMENT OF TBE PLEDGE. 555
other of these divisions. summary, the learned

In respect to this
author says : modes of extinguish-

" These formal divisions of the
ing the right to the pledge have been taten from the Roman law,
in which they are set down with minute accuracy. The common
law, however, is precisely the same as to all the principles which
govern them, with the exceptions which have been incidentally

Suggested. Indeed, the whole doctrine of extinguishment is
resolvable into the very first elements of justice, and is founded

upon the express or implied intention of the parties to extinguish
the pledge, or upon a virtual. extinguishpaent by the necessary ope-
ration of law" {Vide Story on Bedim., §§ 359-365).
Judge Story closes his observations, upon the point imder con-
sideration, with a notice of a few peculiarities in the local juris-
prudence of Massachusetts, among which was a reference to the

case wherein it was held that if a pawnee causes the goods which are
pawned, to be attached in a personal suit against the pawnor for the
very debt for which they are pledged, his lien or right to the pledge
is waived or extinguished {Swett v. Brown, 5 Pick. R., 178). But
this doctrine, the learned author observes, if it is admitted to be fully
settled, is to be restricted to the very case stated ; for an attachment
of the same property by the pawnee, for the security of other debts
due to him by the pledgor, will not be a waiver or extinguishment
of tke lien or right of the pledgee to the pledge, if, at the time of
such attachment, he gives notice to the officer that he means also

to insist on such lien and pledge, and by requiring the officer to
maintain the possession accordingly for him {Morehead v. Newell,
14 Pick. R., 332, 335; Whitaker v. Summer, 20 il., 399, 406).
And the learned judge ^dds " The effect of these decisions, there-
:
fore, supposing them to be sustained to their full extent, may be

that the writ of attachment, in all cases of pledge, will be but a
writ of capias in favor of the creditor, and that, however inade-
quate the pledge may be he must abandon it before
as a security,
he can secure himself by any attachment of the property of his
debtor. What would be the effect of a levy of the execution,
which should issue upon a judgment in favor of the creditor for
the debt,upon the pledge or other property of the debtor, does
not appear to be decided. IS'or, indeed, does it appear to have
been decided what would be the effect" of a personal suit brought
by the creditor while he retains the pledge " {Story on Bailrni.,
§ 366). The subject of this last suggestion will be examined in a

556 Xi^W OF PLEDGES,
subsequent chapter. And perhaps it may not be regarded as

impertinent here to remark, that it would not seem very important
whether the rights of a pledgee are extinguished, or not, by an
attachment of the goods pledged in a suit instituted to recover
the debt secured by the pledge for the reason that it could make
;
no diflference to the pledgor whether the property was held by vir-

tue of the contract of pledge or the attachment. In either caee
they are held for the debt for which they were given in pledge.
The general rule, however, is that a lien is destroyed if the
party entitled to it gives up his right to the possession of the
thing on which he has his lien ; and this doctrine would be appli-
cable in a case of pledge. If the pledgee allows the oflScer to
seize the property ; or, what is more, if he turns out the property
in pledge to the officer, to be taken on an attachment or execution,
the officer must need^ take the possession, which is essential to the
continuance of the pledge, from the pledgee, and thereby.the

pledge might be extinguished. But if, in the end, the property
goes to pay or satisfy the debt which it was pledged to secure,
it would se^m to be not very important whether the rights of the
pledgee, as such, were extinguished by the seizure upon' attach-
ment or not (
Vide Jacobs v. Latov/r, 5 Bing. H., 130; S. 01,15
mg. C. L. E., 388).^

On this point, the Supreme Court of the State of Tennessee has
recently held that a lien upon property pledged may be waived,
by voluntary surrender of the pledge with intent to abandon the
lien,- or by agreeing that it may be attached at the suit of a third
person, but not by the pledgee's causing an attachment to be

made on the property pledged to enforce his lien and as a mode
of sale; and this would seem to be a very sensible doctrine
{Arendale v. Morgcm, 5 Sneed^s E., 703).
TBE TITLE OF THE PLEDGEE. 557
CHAPTEE XLill.
THB pledgee's PEOPEETT ESf THE PLEDGE OE PAWN EIGHTS OF THE —

PLEDGEE IN EESPECT TO THE PLEDGE BEFOEE IT IS EEQUIEED TO BE
EEDEBMED.
It has been shown in a previous chapter that the general property

in a pledge remains in the pledgor. It follows, therefore, thajt by
virtue of the contract of pawn or pledge the pawnee or pledgee
acquires only a special or qualified property in the thing pledged.
Blackstone says :
" In case of goods pledged or pawned upon con-
dition, either to repay money or otherwise, both the pledgor and
the pledgee have a qualified, but neither of them an absolute, pro-
perty in them ; the pledgee's property is conditional, and depends
upon the performance of the condition of repayment, etc. and
;
so, too, is that of the pledgor, which depends upon its non-perform-
ainoe " (2 Blaok.
Com., 396). And, again, the same learned author
says :
" If a
pawnbroker receives plate or jewels, as a pledge or
security for the repayment of money lent thereon at a day certain, he
has them upon an express contract or condition to restore them, if

the pledgor performs his part by redeeming them in due time.
* * * In all these instances there is a special qualified pro-
perty transferred from the bailor to the bailee, together with the
possession. It is not an absolute property, because of his contract
for restitution ; the bailor having still left in him the right to a
chose in action, grounded upon such contract " (2 Black. Com.,
452, 453). But all the authorities agree that in the case of a
pledge, a special property, and a special property only, passes to
the pledgee ; the general property remaining in the pledgor.
The doctrine was laid down, upon numerous authorities cited,
in a case before the present Supreme Court of the State of New
York, that a pawnee of goods does not acquire an absolute title
simply by a failure of the pawnor to pay the debt or redeem the
property at the time specified ; that the pledgee's interest is a spe-
cial property to retain the goods for his security and that there is
;
no forfeiture until the pawnor's rights are foreclosed (Brownell v.

Hcmhms, i Barb. B., 491).
In a recent case in the State of Kentucky, it was held that the
deposit of bills of lading for cotton, without assignment or other
.
558 LAW OF PLEDGES.
writing, and without actual delivery of the cotton, is a sufficient

transfer to pledge the cotton to the bank as security for the pay-
ment of money advanced by the bank upon the faith of the secu-
rity so given, and the Uen acquired by the bank is paramount to a
subseqneat attachment. Here the interest of the pledgee is called
that of a lien {P'etUt v. First, etc., Bank, 4 Bushes Ii.,3S).
In a late case decided by the Superior Court of the city of New
Tork, it was held that the mere deposit of promissory notes by a
holder, before maturity, with a creditor, without indorsements as col-
lateral security, will not divest the pledgor of his legal ownership,
b\xt will only vest in the creditor, as pledgee, a contingent equitable
interest in the notes, or the proceeds thereof, in case the debt
should not be paid, subject to a prior equity then existing in favor
of the maker against the pledgor. This, though called an equitable
interest, is virtually a special property in the notes which were
pledged- as security for the debt (Snow v. Fourth, etc., Bank, 1
Bob. B., 479).
The same court, at an earlier day, held that where a certificate
of stock is delivered to a creditor as collateral security for an

existing debt, the transaction is a pledge, and not a mortgage of
stock; and the legal title passes to the pledgee. This is different
from the general holding of the courts upon the subject, and yet it
is in accordance with the language of the judge who deHvered the
opinion of the court in this case.

Campbell, J., in his opinion, said :
" It is said that a mortgage
passes the title to the mortgagee, subject to be defeated on pay-
ment of the mortgage debt ; and it is admitted that, in case 6i for-
feiture by non-payment on the day, the mortgagor may come into

a court of equity for the purpose of redeeming. But it is hisisted
that in case of a pledge, though the possession passes to the pledgee,
the title remains in the pledgor, and in case of non-payment the
pledgee must bring his action at law for the redemption of the
article pledged, or rather for its return, or for compensation in
damages. Admitting the transaction in this case, according to the

ruling in Wilson v. Little (2 Comst., 443), 8. C. (1 Sand., S. G. B.,
351), was a pledge, and not a mortgage of the stock, yet though
termed a pledge, the legal title passed, and the same reason might
exist, therefore, for coming into equity to redeem. In that case;
and in that of Allen v. Dykers (3 Eill, 593), which were both
actions at law, the plaintiff did not seek a return of the stock, but
TBE TITLE OF TBE PLEDGEE. 559
compensation in damages. In Kemp v. Wesibrooh (1 Yesey, Sr.^

278), Lord Hardwicke says :
'
I will not say in general that there
is a right to come into equity in every case to redeem pledged
goods, yet there are cases when it may be; as the pawnee of
stock is not bound to bring a bill of foreclosure of the equity of
redemption of the stock, but may sell it, and notwithstanding the
mortgagor may bring a bill here for an account of what is due,
and to have a transfer to him.'
" It would seem that in case of pledging stock, where the legal
title passes, the remedy would be the same as upon mortgages;
Indeed, the distinction seems to be only in name in this respect,
though it may be considered usual, as was the case in Wilson v.
little, where the action was for the recovery of damages, and not
for a retransfer" {Hashrouck v. Vanderwort, 4 Scmd. R., 74,
78, 79). It will be observed that the judge, in his opinion, assumes
that when stock is pledged, the legal title passes to the pledgee,
contrary to the rule in ordinary cases of pledging. In this case a
certificate of stock was pledged and a power of attorney was deliv-
ered to the pledgee with the certificate, authorizing the pledgee to

transfer the title for the purpose of securing the debt, and noth-
ing else. been held that an absolute assignment or transfer
It has
of a chose in action may be shown to be simply a pledge, but in

such a case it is obvious that upon the face of the transaction it is
a sale and not a pledge ; would be necessary to

and hence, that it
come into a court of equity to change the status of the parties. But
the general rule certainly is, that in an ordinary pledge the legal
title remains in the pledgor, and only a fecial property passes to
the pledgee (TOC?e M. G.Lemore\: HamTcms, 46 Miss. R., 715).

In a late case arising in Califprnia, heretofore referred to upon
another point, the court declared that in the case at bar the relar
tion of the plaintiff to the goods in suit was that of a pledgee hav-
ing a li&n on such goods to secure the payment of his debt.
But
under the circumstances of the case he was entitled to recover in
the action and that his right of recovery was not limited to his
;
interest only, but extended to the whole value of the goods. It

was not claimed, however, that the plaintiff had any rights
in the case, which might not appertain to a party having simply
a special property in the thing pledged {Treadwdl v. DamiH,
34 Cd. R, 601).
A case in the New York Court of Appeals, also hereinbefore
560 LAW OF PLEDQMS.
referred to upon another point, Holds that the transfer of the legal
title is not in any case inconsistent with a pledge, if the debtor has
a right to the restoration of the property on payment of the debt
at any time, although after it falls due. And it was declared, in
plain terms, that a transaction may be a pledge instead of a mort-
gage, although the legal title pass to the creditor. This was a case
of pledging capital stock of a corporate company. And the late
Samuel Beardsley, one of the and most discriminating law-
closest
yers that ever graced the New York bar, and who had previously
acted as chief justice of the State, was the counsel for the appel-
lants, and argued that the transaction was not a pledge of the
stock, for the reason that the legal title to it vested in the appel-
lants ; assuming that, where personal things are pledged for the
payment of a debt, the general property and legal title always
remains in the pledgor, and that in all cases where the legal title
is transferred to the creditor, the transaction is a mortgage and not

a pledge. But the court was not invariably
said that this true, and
held as before indicated ; and the rule was laid down that the
general property which the pledgor is said usually to retain is
nothing more than a legal right to the restoration of the

thing pledged on payment of the debt. This, however, does not
necessarily conflict with the feet that the rights of the pledgee in
the property are only those of a special bailee having a special
property in the articles pledged ( Wilson v. Little, 2 N. T. R.,
443).
As before stated, the courts have held that a bill of sale, absolute
on its face, may be shown to have been intended as a pledge by

other writings and acts of the parties, and even by parol evidence,
and thereupon the transaction will be deemed and treated as a
pledge. In such case the pledgee ostensibly holds the general
property in the thing, while, in fact, he only holds a special pro-
perty in the property transferred to him by the owner.
But the pledgee of property acquires not only nothing but a
special property in the article pledged, but this special property
extends only to the interest which the pledgor had in the thing
pawned. And if the pawnor had no title to the property pledged,
the pledgee would acquire no lien upon the property as against
the owner {Duell v. QudlApp, 1 Hilton^s R., 166).
And the Supreme Court of Ohio lately held, where M., who had
fraudulently acquired certain stock, assigned it to a bank as col-
RIQBTS or TEE PLEDGEE. 561
kteral security for a pre-existing debt not contracted on the faith,
of the security, that the bank's title to the stock was no better
tliau that of H., and must yield to the title of the party from
whom the stock was fraudulently obtained {fJl&odand v. State
Bank, 16 Ohio St. B., 236).
So, also, it has been decided by the Court of Appeals of the

State of New York that a pledge obtained by false representations
of the creditor, though unredeemed by the debtor, vests no interest
in the pledgee. This is upon the well recognized principle that a
contract obtained by fraud, though perfect in form, is void in law.
No man can safely rest on a title acquired through his own delibe-
rate wrong; and this doctrine is held to be applicable to contracts
of pledge, as well as to every other mutual engagement {Mead v.
Brmon, 32 N. Y. B., 275).

•
But in the case of a fair and Jxmafide pledge, as the pledgee has a
special property in the article pledged, and until the fulfillment of
the condition, has a right also to its exclusive possession, he enjoys
certain and well recognized rights in respect to the
well defined
pledge, before he may be called upon to enforce his claim as
pledgee to obtain payment of the debt which it was made to

Becare.
If the owner of the property put in pledge should wrongfully

repossess himself of the pawn, the pawnee may maintain a suit
for the restitution of the thing itself, or for damages at his elec-
tion. Or if it should be taken from him by a stranger, he may,
in like manner, bring his action against a stranger for the property
or its value {Story on Baihn., | 303, and authorities cited). In a
suit for damages against a stranger who wrongfully took the
property pledged, the pledgee may recover the full value of the
thing, although it is pledged to him for less, as the pledgee will be
answerable over to the owner for the excess. But the rule would
be .difierent where the action was against the owner as pledgor.
In that ease he could only recover a sum sufficient to cover the
amount for which it Vas given as security {J/yle v. Barker^ 5 Binn.
R; 457; Story on Bailm., § 303). And the pawnee may main-
tain trover or trespass in respect to the thing pledged, which the
pledgor cannot do, because the pledgee has the right both of pro-
perty and of possession, while the pledgor has the right of property
( Wwrd v. Macaulay, 4 T. B., 489
only Blexam v. Sawnders, 4;
Bamw. & Cres. B., 941), But if the pledgee should make imprp-
562 LAW OP FLEDGES.
per application of the pawn or pledge, as by selling it or giving it

away absolutely, the pawnor would doubtless be held to have a
right of action against the person in possession, the pledgee having
by his own wrongful
act determined the contract. This may be
affirmed both upon principle and authority ( Vide Pickering v.
Susk, 15 Mst's R., 38).
Whether or not the pawnee is entitled to use the pawn is a mat-
ter which greatly depends upon circumstances. With respect to
this, Mr. Justice Story deduces the following rules from the com-
mon-law' authorities, and from the presumed intentions of the
pawnor (1.) If the pawn is of such a nature that the due preserva-
:
tion of it requires some use, then such use is not only justifiable,
but is indispensable to the faithful discharge of the duty of the

pawnee {Jones on Bedim., 81).. (2.) If the pawn is of such a
nature that it will be worse for the use, such, for instance, as the
wearing of clothes that are deposited, then the use is prohibited to
the pawnee {Jones on Bedim., 81). (3.) If the pawn is of such a.
nature that the keeping is a charge to the pawnee, as if it is a cow

or a horse, then the pawnee may milk the cow and use the milk,
and ride the horse by way of recompense (as it is said) for the keep-
ing. On this point the learned author refers to several authorities)
and, among Kenfs Com. (§ 40, pp. 578, 579, Uh ed.),

others, to 2
observing that " Mr. Chancellor Kent thinks the profits should
belong to the pawnor and be deducted from the debt." He also
refers to Moses v. Cochrane {Owen's B., 123, 124), where Coke,
Warburton and Daniel, Justices, take a different view, holding
that, in the case of the cow in particular, the pawnee might take
the milk and use it as the owner would. (4.) If the use will be
beneficial to the pawn, or it is indifferent, then it seems the pawnee
may use it as if the pawn is of a setting dog or of books, which
;
will not be injured by a moderate use {Jones on Bailm., 81 wde ;
Moses V. Cochrane, Owen's B., 123, 124 Thompson v. FatricJc, 4 ;
Waifs B; 414). (5.) If the use of the pawn by the pawnee will
be without injury, and yet the pawn will thereby be exposed to
extraordinary perils, then the use is impliedly interdicted {Story on
Bailm., §§ 329, 330).
The position of Judge Story, that the use of the pawn is forbidden
in the case last supposed, contrary to the opinion of Sir William

is
Jones, recognized as eminent authority, and much quoted by Judge

Story, He observes that " if pawns cannot be hurt by being worn,
EWETS OF TBB PLEBQEE. 563
they may be used, but at the peril of the pledgee ; as if chains of
gold, ear-rings or bracelets pawn with a lady, and she wears

be left in
them at a public place, and be robbed of them on her return, she

must make them good. 'If she keep them in a bag,' says a
learned and respectable writer, '
and they are stolen, she shall not
be charged (Law of Nisi Prius, 32).
' But the bag could hardly
be taken pri/vately and quietly without her omission of ordinary
diligence; and the manner in which Lord Holt puts the case estab-
lishes my system, and confirms the answer just offered to the ease
from the Year-book ; for '
if she keep the jewels,' says he, '
locked
up in her cabinet, and her cabinet be broken open and the jewels
taken thence she will not be answerable,' Lord Bwymond, 917 "
(t/oM«« on Bailm., 81, 82).
With respect to these remarks of Sir William Jones and those
he quotes from Buller's Nisi Prius, Judge Story observes " It :
may well be doubted whether there is any foundation for the doc-
trine which is afiirmed both by Mr. Justice BuUer and by Sir Wil-
liam Jones, that in ease of a deposit of things which are not hurt
by use, the depositary may, at his peril, use them. The language
of the authority, which is principally relied on for its support, does
not, when properly construed, justify any such conclusion. In
Goggs v. Bernard (2 Ld. Raymond, 909, 916), Lord Holt says If :
'
the pawn be such as it will be worse for using, the pawnee cannot
use it, as clothes, etc. But if it be such as will never be worse, as

if jewels for the purpose were pawned to a lady, she might use
them. But then she must do it at her own peril. For whereas, if
slie keeps them locked up in her cabinet, if her cabinet is broken
open and the jewels taken from thence, she would be excused ; if she
wears them abroad, and is there robbed, she will be answerable.
And the reason is, because the pawn is in the nature of a deposit,
and as such is not liable to be used.' Now, the reason here given,
80 far from proving that the pledgee may lawfully use the jewels,
expressly negatives any such right. And, unless the contrary is
expressly agreed, it may fairly be presumed that the owner of such

a pawn would not assent to the jewels being used as a personal
ornament, and thereby be exposed to unnecessary and extraordinary
perils" [Story
on Bailm., § 330). The position of Justice Story is
..doubtless correct. It may be suggested, perhaps, that if the article
.pawned was a watch, ^n running order, that the pledgee would be
justified inkeeping it wound up and in use; and possibly be might
.
564 2ijiir OF plsd&ss.
carry it the article was not thereby

about his person, especially if
more exposed to injury or loss than though it was kept iii ordinary
deposit. Very likely, however, that a watch would be the better

for using, rather than remaining run down and idle ; and if so, it
would then come within the first subdivision suggested, by which

the use will be justifiable.
Judge Story goes on further to remark " The Roman law and :
French law do not) in respect to the right of using pawns, seem

materially to differ from the common law, unless there is an excep-
tion furnished by the rule thereof that, where the pawn is used
(as if a cow is milked) and a profit is obtained thereby, the pawnee
shall be bound to account for the profits, deducting all expenses
for the keeping {Jones on BaUm., 82 ; Pothier, Traill de Di- o',
n. 47 ; Potkier, de Ifcmtissement, h. 23, 35, 36 ; 1 Domai, h. 3,
tit. 1, § 4, aH. 6 Diff., Ub. 20,

tit. 1, 1. 21, § 2
; Pothier, Pand., ;
Ub. 20, 1, 26
tit.Code of Louisiana
n. ; of 1825, art. 3135).
By the law of Louisiana the fruits of the pledge are deemed to

make a part of it, and the pledgee cannbt appropriate them to his
own use, but bound. to account for them {Code of LouisiAna of
is
1825, a/rt. 3135). Mr. Chancellor Kent seems to think that the
common law is, or at least ought to be, the same (2 Kent's Oor/h.,
§ 40, pp. 678, 579, 4Â ed.) And his doctrine certainly car-
ries with it a most persuasive equity, although, as we have seen,
it seems inconsistent with the rule laid down in some of the autho-
rities" {Story on Baihn., § 331, oiting, under last proposition
Moses v. Cochrane, Owens P., 123, 124).

Besides the right to the possession of the pawn and to the repay-
ment <}f his advances, the pawnee is very commonly, though, it is
said, not necessarily, entitled to interest upon the loan, so long as
it rernains unpaid, and detains the pledge as security in the mean

time. Upon this point a usage of trade raises a question which
seems never to have been formally decided. It is common for
pawnbrokers to keep pledges for two or three months after forfeit-
iire, before sending them, to sale, and as an accommodation to
pawnors to allow them that additional time for redemption ; at
least, this is the custom in England. In such cases it has some-

times been doubted whether they are entitled to charge pawn-
broker's interest. But under the English pawnbroker's act, and
by the general principles of equity, it is clear that they are entitled
to charge such interest. UnlesB the pawn was perishable, it would

RIGHTS OF THE PLEDGEE. 565
be a beijpfit pawnor to have it kept unsold, so that it ought

tp the
not to lie in his mouth to say that he has a right to take the benefit
without paying for it. But this question may depend much upon
the provisions of the statute, where a statute exists on the subject,
and the statutes upon the subject of pawns or pledges will be
notjced hereafter.
If the party who pledged the goods was not the owner of them,
the pawnee has the right to deliver them to the real owner, unless
the pledgor has a special property in them, which he is entitled,
nnder the circumstances, to assert against the owner. And in an
action against the pawnee for the goods by the pledgor in the case
supposed, the pledgee may defend himself by showing that he has
d.elivered over the goods to the true owner {Ogle v. Atkinson, 1
Marsh. B., 323). And if the pledgor holds the pledge merely as
a pledge from the owner, the second pledgee may discharge him-
self from the obligation to the owner by delivering it up to his
pledgor at any time before such owner offers to redeem. This is
'
the general ,ruje in such cases, subject, however, to some excep-

tions founded upon the public policy of protecting iona fide pur-
chasers under peculiar circumstances {Story on Bailm., § 340).
An, exception to the general rule is found in an early case before
the Supreme Judicial Court of Massachusetts. The certificates of

the stock of a company were, by a vote of the company, made
transferable by indorsing on them the name of him to whom they
issued ; and one of the company who held such certificates, indorsed
'
and pledged them as collateral security for a debt, which was after-
ward paid from his funds by his agent, who received the certificates
and afterward pledged them, so indorsed, as security for his own
debt. The court held that the last pawnee, who knew not the
pawiôr's defect of title, might hold them, as against the original
ipwner, till the debt for which they were pledged to. him should be
paid {Jarvis v. Rogers, 13 Mass. R., 105).

Where a bill of lading may be and has been pledged by the con-
signee of the goods as a security for his own debt, the legal right
to the possession passes to the pledgee. But the right to stop
them i^ trcmsitu,, in case the consignee should become insolvent,
is not absolutely defeated, as it is in the case of a sale of the bill
of lading by the consignee, for the vendor may still resume his
interest in them, subject to the rights of the pledgee, and will have
a right, ,3,t least in, equity, to the residue which may remain after
566 I>AW OF PLEDGES.
satisfying the pledgee's claim. And, further, if the goods com-

prised within the bill of lading be pledged along, with other goods
belonging to the pledgor himself, the vendee will have a right to
have all the pledgor's own goods appropriated to the discharge of
the pledgee's claim, before any of the goods comprised within
the biir of lading pass. This doctrine was expressly laid down
in a well considered English case. It appeared that L. & Com-
pany had given bills for oil purchased of the plaintiffs, and
had pledged the bills of lading with H. & Company, as security
for further advances. The vendee's became bankrupt, and
their bills At the time of the bankruptcy,
were dishonored.
H. &
Company held, besides the bills of lading, goods of L. &
Company to the value of £9,961 \s Id. The coui-t held that the
plaintiffs who had given notice to stop in transilm, had a right to
insist upon the proceeds of L. & Company's own goods being
first applied to the discharge of H.'s lien, because the transfer of

the property and right of possession to H. were in the nature of
a pledge only. That being so, the plaintiff Westzinthus, by his
attempted stoppage in transitu, acquired a right to the goods in
equity, subject to H.'s lien thereon, as against L. & Company's

assignees, and as the goods proved sufficient to satisfy the lien, the
plaintiff received the entire proceeds of the oils he had sold to the
bankrupts (
Westzinthus, In re., 5 Ba/rnw. & Adolph. R., 817).
A still England confirms this last case and recog-

later case in
nizes the same doctrine, and shows that goods under such circum-
stances cannot be retained as security for a general balance
of account, but only for the specific advance made upon the secun'ty
of the bill of lading. The consignor's remedy against a factor
thus claiming a general balance, by the last case,
is not, it seems,
at law, but in equity {Spalding v. Reeding, 6 Beav. R., 376).
But though a consignor of goods may stop them in transitu
before they get into his consignee's liands, in case of the insol-
vency of the consignee, yet if the consignee assign the bills of

lading (whether by sale or pawn) to a third person for a valuable
consideration, the right of the consignor, as against such assignee,
is divested entirely or pro tanto, whether the indorsement be in
blank or to a particular person, for the consignee of a bill of
lading has such a property that he may assign it over {Lickharrow
V. Mason, 3 T. R., 63 Eoam.s v. MarUett, 1 Ld. Raym. R., 271).
;
An assignee acting malajide will stand in the same position, as

RIGHTS Of TUB PLEDGEE. 567
to stoppage im, trwnsiiM, as his assignor had previously stood {Cum-

ming v. Brown, 9 EasSs R., 514:, per Lord Ellenborough, G. J.).
And a condition contained in or indorsed on tlie bill of lading, as
that the goods are to be delivered, provided E. F. pay a certain
debt, wUl bind every indorsee who takes it, and he will have no
title to the goods unless the condition be performed {Barrow v.
Coles,3Camp.Ii.,92).
It has heen stated in a previous chapter that the pledgee has
the right to repledge the goods he holds, and that the second
pledgee would, upon such repledging, take the interest of the
pledgor and hold the same, together with the possession of the
pledge, until it was redeemed by the first pledgor. This doctrine,
though broadly asserted by Story and others, had not been fully
recognized in England, and perhaps not uniformly so in the
American States, until the decision of an important case in the
English Court of Queen's Bench in 1866, by which the right to
repledge was fully established. An early English case had been
often cited as an authority for this proposition, but that appears
rather to justify the liberty to repledge, on the inference drawn
by and stated in the reporter's marginal note, than to lay it down
as a proposition already established by authority.
The facts of the case decided in the Court of Queen's Bench,
according to the construction put by the court upon the pleadings,
were, that the plaintiff had deposited certain debentures with one
Simpson, as security for the payment of a bill of exchange drawn
and indorsed by the plaintiif, and discounted by Simpson as
pawnee, upon an agreement that he should have " full power to
sell, or otherwise dispose of" the debentures if the bill was not
paid at maturity. These debentures Simpson pledged with the

defendant Suckling and, as against the latter, it was assumed by
;
the court that the pledge took place before the bill it was originally
given to secure fell due, and was made also to secure a greater
Slim than that represented by the said bill. Under these circum-
stances the plaintiff sued the defendant, the sub-pledgee, in
detinue. The defendant pleaded these facts, and to the plea the
plaintiff demurred, bringing the question before the court whether
this was or was not a lawful exercise of the pawnee's
sub-pledge
dominion over the pledge. The point seems to have been treated
to a great extent as a new one, and was twice elaborately argued
by very able counsel on both sides. The court took time to con
568 LAW Of FLEDGES.
flider; and ultimately, by a majority, the case was decided in favor
of the defendant, thus establishing the right of the pawnee to
repledge.
Mellor, J., in his opinion, said :
" There is a well recognized
•distinction between a lien and & pledge, as regards the powers of a
person eiititled to a lien and the powers of the person who holds
goods upon an assignment of deposit by way of pawn or pledge •
for the due payment of money. In the case of simple lien there
can be no ôwer of sale or disposition of the goods which is incon-
sistent "with the reteDtion of the possession by the person entitled
to the lien ; whereas, in the case of a pledge or pawn of goods, to
secure the payment of money at a certain day, on default by the

pawnor the pawnee may sell the goods deposited and realize the
amount, and become a trustee, for the overplus, for the pawnor 5
or, even no day of payment be named, he may, upon waiting a
if
reasonable 'time, and taking the proper steps, realize his debt in
like manner. * * * It appears, therefore, that there is a real
distinction between a, deposit by way of pledge for securing the
payment of money, and a fight to hold by way of lien to secure
the same object. * * * It appears to me 'that considerable
confusion has been introduced into this snbjecJt by the somewhat
indiscriminate use of the words 'special property,' as alike
applicable to the right of .personal retention in case of a
Hen, and the actual interest in the goods created by the
contract of pledge to secure the payment of money. In Legg
V. Evans (6 M. <& W., 42), the nature of a lien is defined to
;
be a ' personal right which cannot be parted with ' but the con-
tract of pledge carries no implication that the security shall be
made effectual to discharge the obligation.' In such case, the
general properiry remains in the pawnor ; but the question is, as to
the nature and extent of the interest, or special property, passing to
the bailee in the two cases. * * * In a contract of pledge for
securing the payment of money, we have seen that the pawnee

may sell and transfer the thing pledged on condition brbken bnt ;
what implied condition is there that the pledgee shall not in the
meantime part with the possession thereof to the extent of his
interest ? It liiay be that, upon a deposit by way of pledge, the
express contract between the parties may operate so as to make a
parting with the possession, even to the extent of his interest, before
condition broken,' so essential a .violation of it as to revest the rigfit
RIGSTS OF THE PLEDOME. 569
jf possession in the pawnor ; but in the absence of such terms,

wliy are they to be implied? There may possibly be cases in
wJiicli the very nature of the thing deposited might induce a jury
to believe and find that it was deposited on the understanding that
tlie possession should not be parted with ; but in the case before us
we have only to deal with the agreement, which is stated in the
plea. The object of the deposit is to secure the repayment of a,
loan, and the effect is to create an interest and a right of property

in the pawnee, to the extent of the loan, in the goods deposited ;
but what is the authority for saying that until condition broken
the pawnee has only a personal right to retain the goods in his
own possession ? * * * I think that when the true distinction
between the case of a deposit, by way of pledge, of goods, for
securing the payment of money, and all cases of Hen, correctly so
described, is considered, it will be seen that in the former there is
no implication, in general, of a contract by the pledgee to retain

the personal possession of the goods deposited and I think that, ;
although he cannot confer upon any tliird person a better title or

a greater interest than he possesses, yet, if nevertheless he does
pledge the goods to a third person for a greater interest than he

possesses, such an act does not wrmihilate the coniraot of pledge,
between himself and the pawnor but that the
; transaction is simply
inoperative as against the original pawnor, who, upon tender of thx
sum secured immediately hecomes entitled to the possession of the

goods, and can recover in an action for any special damages which
he may have sustained by reason of the act in repledging the

goods."
iBlackbum, J., in his opinion, said: "I think that, both in prin-
ciple and authority, a contract such as that stated in the plea,
pledging goods as a security, and giving the pledgee power, in case
of default to dispose of the pledge (when accompanied by an actual
delivery of the thing), does give the pledgee something beyond a
mere lien ; it creates in him a special property or interest in the
thing. By the civil kwEueh a contract did so, though there was
no actual delivery of possession ; but the right of hypotheca is not
recognized %y the common law. Till possession is given, the
intended pledgee has only a right of action on the contract, and no
interest inthe thuig itself (Rowes v. JBall, 1 B. & C, 481 ; E. C.
L., vol. 14). -I mention this because in the argument several
authorities, which only.go to show that a delivery of possession is,
72
570 .
LAW OF PLEDGES.
aceordini^ to the English law, necessary for the creation of the spe-
cial property of the pawnee, were cited as if they determined that
possession was necessary for the continuance of that property.
* * * In England there are strong authorities that the contract
of pledge, when perfected by delivery of possession, creates an inte-
rest in the pledge, which interest may be assigned. * * * Now,
I think that the sub-pledging of goods held in security for money,
before the money is due, is not in general so inconsistent with the
contract as to amount to a renunciation of that contract. There
may be cases in which the pledgor has a special personal confi-
dence in the pawnee, and therefore stipulates that the pledge shall
be kept by him alone, but no such terms are stated here and I do ;
not think that any such term is implied by law. In general, all
tliat the pledgor requires is the personal contract of the pledgee,
that on bringing the money the pawn shall be given up to him,
and that in the meantime the pledgee shall be responsible for due
care being taken for its safe custody. This may very well be done,
though there has been a sub-pledge."
Mellor, J., read the judgment of Cockbum, C. J., who said :
"1
think it unnecessary to the decision in the present case to determine
whether a party, with whom ah article has been pledged as a security
for the payment 'of money, has a right to transfer his interest in the
thing pledged (subject to the right of redemption in the pawnor) to a
third party. I should certainly hesitate to lay doMTi the affirma-
tive of that proposition. Such a right in the pawnee seems quite

inconsistent with the undoubted right of the pledgor to have the
thing pledged returned to him immediately on the tender of the
amount for which the pledge was given. In some instances it may
well be inferred from the nature of the thing pledged, as in the
case of a valuable work of art, that the pawnor, though perfectly
willing that the article should be intrusted to the custody of the
pawnee, would not have parted .with it on the terms that it sliould
be passed on to others and committed to the custody of strangers.
" It is not, however, necessary to decide this question in the pre-
sent case. The question here is, whether the transfer of the pledge
is not only a breach of the contract on the part of the pawnee,
but operates to put an end to the contract altogether, so as to
entitle the pawnor to have back the thing pledged, without pay-
ment of the debt. I am of opinion that the transfer of the
pledge does not put an end to the contract, but amounts only to a
—;
R10BT8 OF THE PLEDGEE. 571
breach of contract, upon which the owner may bring an action,

for nominal damages, if he lias sustained no substantial damage
for. substantial damages, if the thing pledged is damaged in the
jiaiids of the third party, or the owner is prejudiced by delay in

having the thing delivered to him on tendering the amount for
which it was pledged. We are not dealing with a case of lien,
which is merely the right to retain possession of the cliattel, and
whioli right is immediately lost on the possession being parted
with, unless to a person who may be considered as the agent of
tlie party having the lien, for the purpose of its custody. In the
contract of pledge, the pawnor invests the pawnee with much more
than the mere right of possession. He invests him with a right
to deal with the thing pledged as his own, if the debt be not paid
and the thing redeemed at the appointed time.
"It seems to me that the contract continues in force, and
with it the special property created by it, until the thing pledged
is redeemed or sold at the time specified. The pawnor cannot
treat the contract as at an end until he has done that which alone
enables him to divest the pawnee of the inchoate right of property
in the thing pledged which the contract has conferred on him."
Mr. Justice Shee differed from his learned brethren, assuming,
on the facts set out in the pleadings, that Simpson, the original
pawnee, had put it out of his power to apply the debentures, by
sale or otherwise, in discharge of the plaintiff's liability on his bill
of exchange, in accordance with his contract. His lordshii?
regarded the position, that the pawnee had a power over the pawn
so extensive as that claimed on his behalf, as a proposition fur.
which there would be no authority whatever but- for a case decided
by the English Court of Common Pleas, to which he referred, but
which he argued was not really an authority for the proposition.
The definitions of a pawn, given by Sir William Jones and other
authorities, including Judge StoJ j, were deemed by the learned
justice to exclude the idea that the pawnee could place the pawn
out of the pawnor's power, and out of his own power, to redeem it
by payment of the amount given to him as security. "Pawnees,
like factors, have an absolute right of possession, as against all the
world but their principals, and against them to the extent of their
security. This gives them a right, under certain circumstances, to
sell, but none at all to pledge ; for that is to put the goods out of
their own power,- and, except by the factor's acts, to leave pawnees
572 LAW Of PEEDGES.
from them defenceless against the suit -oi the xe^ owners." In
great measure the judgment of the eminent dissentient member of
the court rested upon the basis that though the pawnee has " a real
right " ovjus in re, a right of possession until default made, hg
has no right of sale until after def<mlt made; and niuch of .hjs
I'easoning appears to indicate a disposition to applj to the pawnee
the rules by which persons in a strictly, and, as one might almost
say, exclusively, fiduciary capacity are bound, at least in a degree
equal to that which bound parties dealing with factors before the
passage of the English factor's act. His lordship was, therefore,
clearly of opinion that the bailment to the fifst pledgee was deter-
mined by the pledge by him to the second pledgee, and that both
pledgees had been guilty of a conversipn of the debentures under
the circumstances stated in the plea.
But the other three members of the court were of a different
opinion, although it is not at all certain that they were unanimoins
in respect to all of the opinions which they severally expressed
(Donald v. SucMing, 1 Law R., Cowrt of Q. B., 585).
It will be.observed that the Lord Chief Justice Cockburn, while
agreeing with the majority of his puisnes, hesitated to say that a
pawnee has a right to transfer his interest in the pawn, because
such a right seemed to him qxiite inconsistent with the right of the
pawnor to have the pawn returned to 'him immediately on tender
of the amount due upon it. But he held that the sub-pledge
would not put an end to the contract, but would only give the
pledgor an action in which he could recover such damages as he
.had actually sustained. On the abstract right to repledge, there-
fore, it may by the judgment in this case no universal

be said that,
binding rule has been laid down, because, while Blackburn and
Mellor, JJ., think that such a right does exist, the lord chief jnstice
expressly guards himself from a formal recognition of that doc-
trine, and Mr. Justice Shee formally and emphatically repudiates
it. But the great practical value of the decision lies in the degree
to which it discourages the old doctrine that any such act ,as
repawning vitiates the entire contract, and renders the pawnee

liable to an action of trover, in which the measure of damages
would be the full value of the goods pawned.
An important case, involving similar questions to those di&^
cussed in the case of Donald v. Suckling, had been previously

decided by the English Court of Common Pleas, and was referred
"
SI0BTS OF THE PLtlDGEE. 57§
to by the counsel and all the judges in the latter case, in the
Queen's Bench. In the case in the Common Pleas, one Cuni-
ming, a bankrupt, had deposited with the defendant 243 cases of
brandy, to be held by him as a security for the payment of an
acceptance of the bankrupt for £62,103, discounted by the defend-
ant, and which would become due January 29th, 1863, and, in case
such acceptance was not paid at maturity, the defendant was to be
at liberty to sell the brandy and apply the proceeds in payment ot
the acceptance. On the 28th January, before the acceptance
beetoe due, the defendant contracted to sell the brandy to a third
person, afid on the 29th delivered to him the dock warrant, and
on the 30th such third person obtained actual possession of the
brandy. In an action of trover, brought by the assignee of the
bankrupt, the Court of Common Pleas held that the plaintiff was
entitled to recover, on the ground that the defendant wrongfully
assumed to be owner in selling and although that alone might

;
not be a conversion, yetj by delivering over the dock warrant to
the vendee, in pursuance of siach sale, he "interfered with the
right which the bankrupt had on the 29th if he repaid the loan
;
but the majority of the court (Erie, C. J., Byles and Keating, JJ)
%eld that the plaintiff was only entitled to nominal damages, on
the express ground " that the deposit of the goods in question
with the defendant to secure repayment of a loan to him on a
given day, with a power to sell in case of default on that day,
created an miermt wnd a nght of property in the goods which
was more than a mere Men / and the wrongful act of the pawnee
did not annihilaie the cont'raGl Itetmoeen the parties, nor the interest
of the pawnor in the goods under that contract." From that view
of the law, as applied to the circumstances of that case, Mr. Jus-
tice Williams dissented, on the ground " that the bailment was
terminated by the sale before the stipulated time, and consequently

that the title of the plaintiff to the goods became as free as if the
bailment had never taken place." The dissent of that most

learned judge diminishes the authority of the case on the point,
and yet the Bubstantial ground upon which the majority of the
court 'proceeded, that is to say, that the " act of the pawnee did
not annihilate the contract between the parties, nor the interest of
the pawnor in the goods," is quite consistent with the nature
and incidents of a deposit by way of pledge {Johnson v. Stear,
15 C. B. B., N. S., 830 ; S. C, 109 Eng G. L. B., 330).
574 LAW OP PLEDGES.
On the abstract right of the pledgee to sub-pledge the goods in
pawn, therefore, the English court's are not yet fully decided ; but
these two late cases show that the leaning of the courts is toward
that power of fi;ee though qualified alienation which is regarded as
necessary and convenient in carrying on the affairs of a great com-
mercial nation.
Says an English elementary writer :
" The pawnee has such an
interest in the pawn that he may assign it over to a third person,
and the assignee will be subject to an action of detinue if he
detains it afterpayment or tender of the money by the owner"
{Whitaker on Lien, 140). And another says: "A pawnee may
assign the pawn to the extent of his interest " {Montagu on Lien,
22).
And it has been before stated that the authority of Judge Story
is to the effect that the pledgee may sell or assign all his interest
in the pledge ; or he may convey the same conditionally by way
of pawn to another person ; and he adopts the precise language of
the learned judge who delivered the opinion in a case before the
Supreme Judicial Court of Massachusetts, which he cites as his
authority for the doctrine {Story on Baihn., § 324, citimg Jarvis

V. Rogers, And, in respect to this authoritj"^
15 Mass. H., 408).
it should be stated that was a ease of the pledge of negotiable
it
securities and when the case was first before the court, Parker,
;
C. J., said " This case is distinguishable from the common cases
:
of agents, factors and commission merchants, to whom property

has been intrusted for special purposes, and who have no right to
exceed that authority. We do not question any of these cases,
nor those which have decided that he to whom property has been
pledged cannot transfer a title in such property to another. We
proceed upon the ground that the plaintiff's intestate had, by hi^
own act, together with the other members of the company, gi\eii
a negotiable quality to those certificates " (Jarvis v. Rogers, 13

Mass. R., 107).
The Supreme Court of the State oi Arkansas has recently
decided that State bonds, deposited as security for money advanced,

are held as a pledge for the payment of the money ; and that the
transfer of such bonds by the pledgee to a third party passes the

debt which the bonds were given to secure. And further, that
a purchaser of the pledgee's claim, after the transfer of the bonds,

is not entitled to recover the bonds or collect the debt. This case
RIGHTS OF THE PLBOQSE. 575
impliedly, if not expressly, decides that the pledgee may transfer
his interest in the pledge without invalidating the security ; that
is where the pledge consists of negotiable securities, if not in

other cases (
Whitney v. Peaz, 24 Ark. R., 22).
A similar doctrine was also laid down by the New Tork Court
of Appeals in a recent case, wherein it was expressly decided that
a creditor may assign the principal debt to a third person, and

givehim the benefit of any pledge which he holds to secure the
payment of such debt and that, so long as nothing is done to
;
deprive the pledgor of the right to redeem on payment of the

amount due on the principal, debt, the pledgor is not injured. So
held where the pledge consisted of negotiable promissory notes ;
and no intimation was given as to what would be the particular

rule, where the pledge was that of goods and chattels {^Chapman
V. Brooh, 31 iT. T. B., 75).
A very reasonable doctrine upon this point would seem to be,

that the pledgee may transfer his interest in the pledge to a third
pers6n, either by absolute sale or. sub-pledge, without invalidating
the security at the same time being responsible to the pledgor foi
;
any injury to the property pledged or other damage which may arise
by reason of the sale or sub-pledge. And the Supreme Court of Penn-
sylvania recognized the principle in a late case, wherein it was held
that the pledgee of collateral securities may exchange them with
out the consent oi the pledgor, unless restricted by the express

terms of the pledge ; but that, if loss result from the want of proper
care and diligence, he is respoiîble' to the pledgor for the extent
of the injury {Gerard, etc., Ins. Go. y. Ma/rr, 46 Perm. E., 504).
Another right seems to pertain to the pledgee, while he holds
the pledge, and before the debt becomes due for which the pro-
perty is put in pledge.; which is, that any interest or addition in
the ordinary course of things accruing in respect to the things
pledged may be held by the pledgee with the original pledge as
security for the payment of the debt or performance of the act
which the pledge was made to secure. To this effect is a
first
recent decision of the Supreme Court of the State of Maine, by

which it was held that if one pledges as collateral a demand, on
which interest is accruing at stated periods, some of which accrue
before his debt, so secured, becomes due, such pledge necessarily
implies an authority to the pledgee to collect and receive the inte-
rest as it becomes payable, and hold it, on the same terms as the
576 LAW OF PLEDGES.
demand itself, especially if the collateral be a bond with interest
coupons attached, -vehich the pledgor does not cnt off before the
bond is pledged. And it was expressly decided that when a raif-
1 ciad company pledges its own bonds as collateral for the payment of
debts contracted by the company, and the pledgee cuts therefrom
and collects of the agents of the company the interest coupons that
afterward become due, such acts cannot operate as a conversion of
the bonds by the pledgee {Androseoggin H. R. Co. v. Avhurn
Bank, 48 Maine H., 335). And it may be added, in general
terms, that the pledgee of goods, with an interest in them as secu-
rity for a debt or demand, is armed with the whole power and
remedies of the law to protect his possession and support his claim.
And when the pledge is a promissory note or other negotiable
paper, and the same becomes due and payable before the pledgor's
default in redeeming, the pledgee may receive the money due on
the note or other security and hold it in place of the paper
originally pledged.
CHAPTER XLIV.
BIGHTS OF THE PLEDGEE TO ENFOECE HIS CLAIM BT DISPOSING OF -THE

PEOPEKTT PLEDGED AFTEE THE CLAIM HAS MATUEED NEGOTIABLE —
SECUEinES TO BE COLLECTED AND THE MONEY APPLIED TO PAT THK
DEBT.
»
When there has been a default in the pledgor in paying his
debt or complying with his engagement, it is the right of the

pledgee, as a result of the contract of pledge, to dispose of the
pledge for the purpose of realizing his claim or indemnity. If the
contract does not fix the time for the payment of the debt, or
within which the pledgor must perform his engagement, tlie
pawnee has a right, after a reasonable time has elapsed, to call upon
the pledgor and demand a fulfillment of the engagement and if ;
he neglects or refuses to comply, the pledgee is at liberty to pro

eeed, in the manner prescribed by law, to enforce his claim. Tlie
process to be taken by the pledgee may depend somewliat upon the
terms of the contract of pledge or the nature of the pledge itself.
Where the pledge is a negotiable security, as a promissory note,
a bill of exchange, and the like, the authorities are uniform in holding
EI&BTS OF THE PLEDGEE. 577
that the pledgee has the right to collect the money due thereon by
a Buit, if necessary, and apply the-proceeds to the satisfaction of his
.
claim ; and if there should happen to be a surplus, such surplus would
belong to the pledgor. The pawnee's authority, in these cases,
extends only to receiving the amount of the note or other nego-
tiable security. He has no right, ordinarily, to compromise the
same for less than the face, although, if the circumstances required
it, doubtless the security might be disposed of by a judicial pro-
ceeding, after the pledgor has had notice to redeem it ; and in all
cases where notice to redeem cannot be given to the pawnor per-
sonally, the disposition of the pledge must be authorized by judicial
proceeding, unless the contract of pledge prescribes the manner of
proceeding. A pledging of promissory notes, and the like, implies
authority to the pledgee to. collect the same when due {Nelson v.
Wdlmgton, 5 Bosw. S., 178).
The rule in respect to the disposition of commercial securities,
which have been pledged, seems to be well settled by a well con-
sidered case in the New York Court of Appeals, wherein it was
decided that the pledge of commercial paper as security for

a loan of money does not, in the absence of a special power
for that purpose, authorize the pledgee, upon the non-pay-
ment of the debt, and upon notice to the pledgor, to sell the
securities pledged either at public or private sale ; but that he is
bound to hold and collect the same as they become due, and apply
the money to the payment of the loan.
Browp, J., whodelivered the opinion of the court, among other
things, upon this point, said : " The contract was a pledge and not a
mortgage. It was entirely silent as to the power of the pledgee
over the subject of the pledge. It imposed no conditions and pre-
scribed no terms in regard to the disposition of the notes, in the
event of the loan not being paid at maturity. His power and
authority to deal with them is to be determined by the law. The
notes were deposited in his hands as collateral security, and we
are to saywhat the term imported, what rights it conferred, and
what duties it imposed upon the pledgee. The primary, and indeed
the only purpose of the pledge is to put it in the power of the
pledgee to reimburse himself for the money advanced when it
becomes due and remains unpaid. The contract carries with it an

implication that the security shall be made effectual to discharge
the obligation. 'It simply clothed the creditor with 9.utborit7
73
578 'law of pledges.
to sell tlie pledge and reimburse himself for his deht, interest and
expenses, and the residue of the proceeds of the sale then belonged
to the debtor. It has been supposed by some writers that to
justify such a sale it was indispensable that it should be mad6
under a decretal order of some court, upon the application of the
creditor. But, although the creditor was at liberty to make such
application, it does not appear that he might not act, in ordinary
cases, without any such judicial sanction, after giving proper notice
of the intended sale, as prescribed by law, to the debtor ' {Story's
Eg. Jur., 1008 ; 2 Kent's Com., 582). * * * Where the sub-

ject of the pledge consists of goods and merchandise, or chattels of
any kind, there is no other way in which they can be applied to
the payment of the debt, unless they are first converted into money,
which can only be done by a sale. * * * But where choses
in action for the payment of money, notes, bills, bonds and mort-
gages are the subject of the pledge, the case is widely different.
This species of property has no intrinsic value, of which one per-
son may judge as well as another. They are the written evidences
of debts due, or to become due from others, and their value depends
exclusively upon the solvency and ability of the debtor to pay
them at maturity. They are not merchandise in the usual. sense
of the word ; and, although they are sometimes the subject of sale,
the practice is of recent origin, and evidence of the abuses rather

than the legitimate uses of credit. A creditor holding such pro-
perty in trust for the use of his debtor, and ofi'ering it for sale in
satisfaction of his debt, can hardly fail to sacrifice it ; for, unless
the solvency and circumstances of the makers of the note are well
known and placed beyond doubt, few will purchase, and those only
for the purpose of speculation and at ruinously low prices. Unless
the stipulations of the contract are expressly to that effect, the law
will not require the debtor to submit his property to an ordeal

which must be, in a great measure, destructive of its value. It
will rather presume that it was the intention of the parties to the
contract that the creditor should, if he resorted to the pledge in
place of the personal liability of the debtor, accept the money
upon the hypothecated securities, as it became due and payable,
and apply it to the satisfaction of his debt. This is the fair import
of the contract, for it is not reasonable to infer an intention to
subject to the hazards of a sale a species of property which is not
usually the subject of a sale, more especially when that property

RWET8 OF TBE PLEDGEE. 579
farnislies itself a means of reimbursing the creditor without loss, or

the hazard of loss to the debtor. The acceptance' of the pledge
does not suspend the creditor's remedy against the debtor a moment
after the debt falls due. But if he resorts to the hypothecated
securities, consisting of the written obligations of others for the

payment of money, he must accept the money upon them as they
become due, in place of selling, and, perhaps, sacrificing them at
a sale. This is just and right, both to debtor and creditor, and
the law seeks to accomplish nothing less. In respect to the sub-
ject of the pledge, the right of property does not pass to the pledgee,
but remains with the pledgor, subject to the lien of theformer
(2 Kenfs Com., 581). His character is that of trustee for the
pledgor, first to pay the debt, and second to pay over the sur-
plus, and he cannot so deal with the trust property, so as to destroy

or even impair its value" {Wheeler -v. Newbould, 16 iT. Y. H.,
392, 396-398).
This opinion of the learnedjudge presents the doctrine in such

cases, and the reasons for the rule, in language both clear and
cogent ; and it would be difficult to add to or take from the extracts
here given, or express the doctrine in better terms, which is a
sufficient reason for occupying so much space with a single
authority.
The present Supreme Court of the State of New York recently

held that it is the right of the holder of choses in action, as col-
lateral security, payment of them and thus satisfy the prin-
to enforce
cipal debt, from so doing by the C9ntract under
unless prohibited
which he obtained the collaterals. Of course the whole matter
may be regulated by the express terms of the pledge {Nelson v.
Edmards, 40 Barb. R., 279).
The Supreme Court of Wisconsin has recently decided that
^
notes assigned as collateral security may be sued on at the same
time as the original debt, and judgments taken in all the suits, and
collected to the amount, at least, of the original debt and the
,
costs in all the suits ; but if more is collected, the creditor holds the
surplus for the benefit of the assignor {Planfs, etc., Co. v. Falvey,
20 Wis. R., 200 ; and vide Hilton v. Wm-ing, 1 ib., 492}.
The Supreme Court of Louisiana has lately held that a pledge
• of a promissory note may be made, and may enable the pledgee to
sue in his own name and recover on the note without the indorse-
ment of the pledgor ; thus recognizing the general doctrine, on
;
580 LAW OF FLSDGBS.
the subject {Louisiana State Bamk y. OoMwnie, 21 La. Ann. R.

555). And a similar decision was made, about the same time, by
the Supreme Court of the State of Minnesota ( White v. Phelps,
UMinn. i?., 27).
The Supreme Court of Louisiana, at a somewhat eariier day,

decided that the pledgee of a note has the right to demand and
receive the money due on it, and to sue for it in his own name
^^D^x V. TulJyi 14 La. Awn. H., 456). And the Supreme Court
of Indiana has further held that such pledgee must account fur
itswhole value, that is, the whole face of it, principal and interest,
and that he cannot, to the prejudice of the pledgor, settle with the
maker for less, or take a note in part satisfaction. If the pledgee
does thus settle, of course the pledgor may hold him responsible
for the entice demand, and, it seems, may sue him for the value
without a previous demand {Depvy v. Cla/rh, 12 Ind. £., 427
amd vide Jones v. Sawleins, 17 t'J., 550).
An exceptibn to the general rule on the subject was lately
made by the Supreme Court of California. The court held that

where negotiable paper was indorsed over to and held by the
creditor as security for the payment of a debt, without any other
express agreement between the parties, and where the maker of
the note resided in another State, and it was not shown that he
had any property subject to seizure and sale- within the jurisdic-
tion under such circumstances the holder of the instrument given
;
in pledge was authorized to resort to a court of equity for a fore-

closure and sale {Donohoe v. Gamile, 38 Gal. R., 340). This
would seem to be quite reasonable for it is obvious, in a case of
;
this kind, that the collection of the note would be attended with
not a little expense, which it is probable the pledgee would have
no right to deduct from the amount collected. Under such cir-
• cumstances, it would be more equitable that the security be sold
for what it would bring at a fair sale, and let the purchaser make
the most of it.
The Supreme Judicial Court of Massachusetts has recently
decided that the recovery of judgment, without satisfaction
thereof, upon a simple contract debt, will not discharge a pledge

given as collateral security for the debt. And further, that if a
promissory note, which is without consideration as between the
original parties thereto, is delivered without consideration to

another person who pledges it, before its maturity, as collateral ,
BIGHTS OF THE PLEDGEE, 581
security for a debt of Ms own of less amount than the face of the
note) the pledgees, if thejtake it without notice, are to be deemed
holders for value, and may maintairt an action thereon for the
amount due to them, upon the debt which it was pledged to secure.
In the opinion of the court it was said :
" The doctrine of
merger of a simple contract in the higher security of a judgment
on such contract is wholly inapplicable to this case. The note in
suit was pledged as collateral security for a debt due to the plain-
tiff from the pledgor, and this pledge continued valid and effectual
until such debt was paid or discharged, notwithstanding the evi-
dence of it had been changed from a promissory note to a judg-

ment of a court of record thereon.
The evidence established that the plaintiffs received the note from
the holder before its maturity, without any knowledge of the cir-
cumstances under which the defendants had delivered it to the

payee, or the purpose for which the latter delivered it to the
holder, and that it was held by the plaintiffs as collateral se&urity
for a valid debt due from the holder to them. Under the decision
of the court, these facts proved that the plaintiffs were lonajlde
holders for value and without notice, and were therefore entitled
to recover to the extent of their debt for which the note was.
pledged as collateral security " {Fisher v. Fisher, 98 Mass. JR.,

303, 304).
CHAPTER XLV.
EIGHTS OF THE PLEDGEE AETEK THE CLAIM HAS MATUEED IN CASE —
GOODS OE PERSONAL PKOPEETT ARE PLEDGED, THE PLEDGE MUST
BE SOLD —
WHEN AND HOW THE PLEDGE IS TO BE SOLD EIGHTS OF —
PLmOEE IN CASE OF PLEDGE TO SECUEE ILLEGAL CLAIM EXTENT
or THE pledgee's CLAIM IN THE PLEDGE PLEDGEE'S EIGHTS WHEN
SEVEEAL THINGS AEE PLEDGED WAIVEE OF EEKOES IN THE SALE
OF THE PLEDGE.
Where the pledge consistsof anything but negotiable paper, and

the pawnor becomes in default by not paying the debt or perform-
ing his engagement, the pawnee acquires a right to dispose of the
pledge for the purpose of raising themoney to pay himself,! or

indemnifying himself, for the matter which the pledge was made
to secure. In an early case in the State of Mississippi, it was
582 LAW OF PLMDGES.
intimated that the pawnor, where property is pledged to indemnify

against a debt, may, on the debt's falling due, apply the property
.in discharge of the debt (Fes^.v." Crcdg, 3 Miss. R., 219). But
this is not the correct doctrine. On the debt's falling due, the
pledgee has simply the right to sell the pledge and pay himself out
of the proceeds, and, until a sale, the authorities are uniform in hold-
ing that the pawnor may redeem the pledge by paying the debt If
the contract of pledge specifies the time within which the pledge
must be redeemed, or, in other words, there is an agreement ae to
the time when the pledge may be sold, upon the expiration of the
stipulated time the pledgee may proceed to make sale of the thing
pledged. If there is no stipulated time for the payment of the
debt, but the pledge is for an indefinite period of time, the pawnee
has a right, upon request, toinsist upon a prompt fulfillment of the.
engagement and if the pledgor neglects or refuses to comply, the

;
pledgee may, upon due demand and notice to the pledgor, require
the pledge to be sold {Story on Bailm., § 308). Sometimes it is
held that the pjedge may be sold without previous notice to the
pledgor, and in other cases it is held that notice of the -sale must
be given Sometimes the matter of the disposition of the pledge,
in case of default of the pledgor, is regulated by statute, although
there are but a few of the States which have, special statutes upon
the subject. It may be aflirmed, however, that in all cases it is
safe not to sell without previous notice, and that care should be
taken not to sell the pledge before the pledgee has acquired the
right to do so.
The Supreme Court of Blinois, at an early day, decided that

where goods are pledged to secure a debt or interest, with a pro.
vision for a forfeiture in case of non-payment at a day fixed, the
time may be extended by a subsequent parol agreement, and that
no new consideratiofl for such extension is necessary. And when,
in such case, an extension of the time has been given, the court
held that the creditor cannot sell the goods before the expiration
of such extension and in case he does so sell, it is a conversion,'
;
and the creditor is liable for the full value of the goods, without
any deduction for the amount of his debt ( Wadsworih v. Thomj).
son, 3 Oilman^s B., 423).
The rule in respect to the sale of the pledge, as extracted
from the authorities and books, by Judge Story, is to the
effect that by the , Koman law a right of sale was given, the
,
TRE SALE OW TBE FLEDGE, 583
Baine as in the common law. If a right to sell constituted a

part of the contract, it was obligatory. If no such right was
provided for in the contract, and a sale was not prohibited, it
might be made. And even if prohibited, the pledgee might, after
regular notice and proceedings against the pledgor, have a right
to sell upon his default of payment. The sale might be by a judi-
cial order of sale or by the act of the party, after due notice to
the owner. And in either case, if the sale was honafide, it passed
the title completely to the purchaser. Justinian, however, directed
that if any mode of selling was prescribed by the parties, that
should be followed, and that in the absence of any such stipula-
tion the prawnee might sell, after two years from the proper notice
to the party, or from a judicial sentence, and not before. The

,
modem nations of continental Europe, and others using the civil
law, seem generally to have adopted the rule of requiring a judi-

cial sale {Story on Bailm., § 309, citing Pothier, Domaf, Ayl/iffe,
K&nSs BelVs Com., <md other writers for authority).
Com,.,
The common law of England, existing in the time of Glanville,

says Story, seems to have required a judicial process to justify the
sale, or, at least, to destroy the right of redemption. But the law,
as at present established, leaves an election to the pawnee. He
may file a bill in equity against the pawnor for a foreclosure and
sale, or he may proceed to sell ex mero motu, upon giving due
notice of his intention to the pledgor. In the latter case, if the
sale is 'bona fide and reasonably made, it will be equally as obliga-
tory as in the first case. But the opinion is clearly expressed that
a judicial sale is most advisable in cases of pledges of large value,
as the courts watch any other sale with uncommon jealousy and
vigilance; and any irregularity may bring its validity into
question {Story on Baihri., § 310, cmd authorities cited).
With some few exceptions, the rule upon the subject which pre-
vails in England has been adopted by the American States, and
a brief reference to the leading American authorities will present

the tone of the courts upon the point.
A leadingcase in the State of New York was decided by the
old Supreme Court of the State, and lays down the rule that a
creditor having personal property pledged to him by his debtor,
as security for the debt, cannot sell the same until he has first
called upon the debtor to redeem the pledge, and that he must
also give him notice of the time and place of sale ; and that the
584 LAW 01' PLEDGES.
rule, in this respect, is the same, whether the pledge was made to
secure a debt, payable presently, or one payable at a future day.

Jewett, J., gave the opinion of the court, and said :
" Non-pay-
ment of the debt at the stipulated time did not work a forfeiture
of the pledge, either by the civil or at the common law. It simply
clothed the pledgee with authority to sell the pledge and reim-
burse himself for his debt, mterest and expenses,^ and the residue
of the proceeds of the sale belonged to the pledgor. . The old
rule existing in the time of Glanville, required a judicial sentence
to warrant a sale, unless there was a special agreement to the con-
trary. But as the law now is, the pledgee may file a bill in chan.
eery for a foreclosure and proceed to a judicial sale, or he may sell
without judicial process, upon giving reasonable notice to the

pledgor to redeem, and of the intended sale. I find no authority
countenancing the distinction contended for ; but, on the contrary,
I understand the doctrine to be well settled, that, whether the
debt be due presently or upon time, the rights of the parties to the
pledge are such as have been stated. * * * Nor do I see any
reason for such a distinction. In either case the right to redeem
equally exists until a sale ; the pledgor is equally interested to see
to it that the pledge is sold for a fair price. The time when the
sale may take place is as uncertain in the one case as in the-

other. Both depend upon the will of the pledgee after the lapse
of the term of credit in the one case, and after a reasonable time
in the other, unless, indeed, the pledgee resorts to a court of equity
to quicken a sale. Personal notice to the pledgor, to redeem, afd
of the intended sale, must be given as well in, the one case as in
,the other, in order to authorize a sale by the act of the party.

And if the pledgor cannot be found, and notice cannot be given
him, judicial proceedings to authorize a sale must be resorted to
(2 Story's Com. on JEq., § 1008). Before giving such notice the

pledgee has no right to sell the pledge and if he does, the pledgor
;
may recover the value of it from him, without tendering the debt,
because, by the wrongful sale, the pledgee has incapacitated himself
to perform his part of the contract, that is, to return the pledge,
and it would, therefore, be nugatory to make the tender " {Steams
V. Mwrsh, 4 Demo's B., 227, 230, 231).
From a very early day the right of the pledgee to sell the pledge
after the debt is due, upon reasonable notice, has been conceded
in the State of Kew York, and a custom has grown up and hae
;
THE SALE OF THE PLEDGE. 585
been sanctioned by the courts, of selling stocks held in pledge in

the city of New York, at the Merchants' Exchange in said city
that is to say, this is the general understanding of the law, unless
a sale is restricted by positive stipulation. Any other disposition
of the pledge must rest upon express agreement.
The Court of Appeals of the State of New York, in a case
hereinbefore referred to upon another point, decided that a creditor
having personal property pledged to him by his debtor as security
for the debt, cannot sell the same until he has demanded payment
of the debtor. And that the rule is the same, although the debt
is payable presently and without demand, and although by the
terms of the pledge the creditor may sell at public or private sale,
without giving notice to the debtor. The notice of the sale of the
pledge was expressly waived by the terms of the pledge, but the
court held that this did not supersede the necessity of demand of
payment of the debt.
Euggles, J., delivered the opinion of the court, and said :
" In
every contract of pledge there is a right of redemption on the
part of the debtor. But in this case that right was illusory and of
no value, if the creditor could instantly, without demand of pay-
,ment and without notice, sell the thing pledged. We are not
required to give the transaction so unreasonable a construction.
The borrower agreed that the lender might sell without notice,
but not that he might sell without demand of payment, which is a
diflEerent The lender might have brought his action imme-
thing.
diately, for the bringing an action is one way of demanding pay-
ment; but selling without notice is not a demand of payment,

and it is well settled that where no time is expressly fixed by con-
tract between the parties for the payment of a debt secured by a
pledge the pawnee cannot sell without a previous demand of pay-

ment, although the debt is, technically, due immediately" (îlson
V. T. R., 443, 448).
LittU, 2 If.
The Superior Court of the city of New York, some time ago,
decided that bonds or stocks of a corporation, pledged as collateral
security for payment of a note at maturity, without any
the
express authority to sell them, may, upon default of payment of
the note, be sold by the pledgee, at public auction, upon reasona-
ble notice of the time and place of sale and the place in the city
;
of New York may be the Merchants' Exchange. And it was

declared that any other mode of sale must rest upon express
74
586 Z,AW OF FLEDGES.
agreement. But it was held that commercial paper so pledged

cannot be sold ; that in such ease the pledgee can only keep the
paper until it matures, and then collect and apply
it {Brown v.
Ward, 3 Duer's B., 660).

Judge Edmonds sitting as circuit judge once held that the notice
to be given by the pledgee is not of the time and place of the sale,
but of an intention to sell in enforcement of the lien, unless the
debt is paid (Harkins v. Peterson, 1 Edm, Sel. Cos., 120), But

this is not in accordance with the general rule as it is well settled
by leading authorities.
The Court of Appeals of the State of Iêw York, in a quite
recent case, laid down what they regarded the true rule upon the
subject under consideration, holding, in substance, that the general
rule, in the absence of a contract, affecting the question is, that the
pledgor must have notice of the time and place of the sale of the
pledge ; declaring that the principal reason assigned for the rule
is, that the pledgor may have an opportunity to attend the sale
and see that it is fairly conducted ; that he may exert himself in

procuring buyers, and thus enhance the price ; that he has, in
fact, the right to redeem the pledge at any moment before the sale
shallbe actually made. And it was said that these rules should
be carefully adhered to, in all cases in which they are applicable.
They may be modified or waived by agreement ; and in case a
special agreement has been made between the parties, controlling
their right, it is subjected, like other agreements, to the well settled

rules of construction. The previous authorities were examined,
and the rule declared, as above, to be the general rule on the sub-
ject {Milliken v. Behon, 27 W. T. B., 364, 373).
In a case before the old Supreme Court of the same State, the
question of the proper disposition of a' pledge, after default of the

pledgor, was examined, and decided in accordance with the rule
before indicated. The facts of the case were : The plaintifE applied
to the defendants to borrow $21,000 for sixty days, offering as
collateral security 250 shares of North American Trust and Bank-

ing Company stock. The defendants accepted the proposition,
advanced the money, and took a note for the amount, stating
therein the deposit of the stock,and that the defendants were

authorized to sell the same, on non-payment of the Ioom, at the
board of brokers in New York city, and that notice of the sale
was waived if not paid at maturity. The defendants sold the
THE SALE OF THE PLEVQE. 587
stock before the loan became due, and the borrower brought suit
to recover for the value of the stock,and the court gave judgment
for the same, less the amount of the note. The defendants moved
for a new trial which the court at General Term denied.
Nelson, 0. J., delivered the opinion of the court, and said " It :
is not pretended that a pledgee, as such, has a right to dispose of

the pledge before the pledgor fails to comply with his engage-
ment ; on the contrary, it is conceded that such right, if it exists
at all, must be conferred by an express or implied agreement. In

this case, as the agreement between the parties was in writing, the
question as to the defendants' right to sell the stock before the note
became due must be determined, as in other cases depending
upon the construction of written instruments, by consulting the
terms and provisions of the agreement, and thus endeavoring to
ascertain the understanding and intent of the parties. * * *
The note contains no consent, express or implied, that the defend-
ants may sell or dispose of the stock before the loan becomes due.
On the contrary, it contains a strong implied prohibition against
selling, except in a single event, viz., nonpayment of the money at
the day specified. There is not only no authority to sell before
the happening of this event, which of itself is enough to refute
the pretensions of the defendants, and subject them to the conse-
quence of a breach of trust, but, having provided for the sale at a
given period and on a specified condition, all idea of authorizing
one previous to that time is necessarily negatived upon the famil-
iar maxim, esopressio unius est exohosioalierius'^ (Alhn v. DyJcers,
3 Sill's R., 593, 596, ' 597). Error was then taken from the
Supreme Court to the Court of Errors, where the judgment was
almost unanimously affirmed, only one senatoi? dissenting.
The chancellor, in his opinion, said :
" Fungibles, or such arti-
cles as by weight, number

are capable of being estimated generally
or measure, do not, when deposited as a pledge, become the pro-
perty of the pledgee, as they do upon a loan of them for the ;
pledge is not for use, but merely as a security. If the pledgee,

therefore, sells the pledge without authority, it is a violation of his
trust, although he afterward purchases other articles of the same
kind and value, to be returned to the pledgor, unless there is some
agreement, either express or implied, between the parties, that he
shall be permitted to do so. * * * Ip. the case under con-
sideratioUj there was no express agreement that the pledgees should
588 LAW or PLEDGES.
be permitted to sell the stock before the note became payable.

And the express contract contained in the note
' itself, that they
sliould be at liberty to sell the stock after a certain specified time
and in a particular manner, precluded the idea of any implied
autliority to sell before the note became due, or at any other place
than at the board of brokers. * * The authority to sell the
*
stock in question at the board of brokers, for the payment of the
debt, if such debt was not paid when it became due, did not
authorize the pledgees, even if they had retained the stock in their
own hands, to put the same up secretly. But they should have
put up the stock openly, and oflFered it for sale to the highest bid-
der, at the board of brokers stating that it was stock which had
;
been pledged for the security of this debt, and with authority to
sell it at the board of brokers, if tlie debt was not paid. In this
way only the stock would be likely to bring its fair market value
at the time it was offered for sale; and in this way alone could it be
known that it was honestly and fairly sold, and that it was not pur
chased in for the benefit of the pledgees by some secret under,
standing between them and the purchasers."
Wright, Senator, in his opinion, said " Even had there been no
:
written agreement in this case, and the stock had been pledged for
repayment of the moneys advanced, the plaintiffs could not have
sold or parted with it absolutely until the time of redemption
expired, and then only by a judicial sale. The pledgee of pro.
perty has no authority to sell the pledge until there is a forfeiture
(4 KenSs Com., 138), although he may assign it, and the assignee
will take subject to all the responsibilities of the pledgee (2 Kenis
Com., 539). But here is a written agreement, which, as I read it,
expressly prohibits the sale of this stock before the time limited
for thepayment of the money, and I know of no rule of law which
wiU confer upon a stock broker in Wall street any greater authority
over a pledge than is given by law to a pledgee of property else-
where. * * * But it was insisted upon the argument that
the usage of stock-jobbers in Wall street, to hypothecate or repledge
stock taken by them upon a loan, formed a part of the contract in
question, and an authority for the course pursued by the plaintiffs
in error. It is a sufficient answer to this to say, that no such
authority is reserved in the. written contract ; and to allow the
usages of Wall street to control the general law in relation to any
matter might result in the establishment of principles not always
:
THE SALE OF OWE FLEBGE. 589
in accordance with sound morals. I prefer that legal principles

should have a universal application, and that contracts should
receive the same interpretation in the thronged and busy mart of
our commercial .metropolis that they do elsevfhere" {Dyhers v.

Allen, 7 HilVs B., 497-502).
It was hardly necessary to quote so largely from the opinions in
this case to justify the judgment arrived at; for it would certainly
seem to be a very plain case, and was very properly decided. But
which
there are general principles enunciated in the discussion,
make the opinions the more valuable upon the point under con-
sideration here. The remark of Senator Wright, that a pledge,
after the default of the pledgor, can only be sold by a judicial sale,
would not now be recognized but ; otherwise the opinions are able
and reliable.
Several interesting questions respecting the proper disposition of
a pledge were very ably discussed in the decision of a late case by
the present Supreme Court of the State of New York, the doctrine
of which, as extracted by the reporter, and given in the syllabus, is.
the following
Where certificates of stock are deposited with a broker by a cus
tomer as margin- or additional security against loss to him, while
carrying other stock for the depositor, the transaction in. law is a
pledge ; and, being such, annexing to the scrip pledged a power

of attorney from the owner, authorizing the transfer of the scrip,
does not change the character of the transaction, but is merely a
necessary act to put the pledge in. a condition to be available, as
such, in case of the pledgor's default. As between the pledgor and

the pledgee, in such a case, the latter has no legal right, secretly
or without the knowledge of or notice to the pledgor, to sell the
stock pledged. The use of the certificates of stock by the pledgee,
beyond the mere purpose of a, pledge or margin, is tortious, if
not felonious. And a transfer of the certificates by the broker to

a third person gives no title to the latter as purchaser, though he
pays a valuable consideration therefor, and though the scrip has a
blank power of attorney attached, and even though such purchaser
believed he was dealing with a person who had authority to sell
Potter, J., held this to be the rale in regard to every species of
personal property pledged, except commercial paper; and he
declared that certificates of stock have not yet been recognized by
590 LAW OF PLEDGES.
tlie courts as another exception to the rule, and as holding equal

rank in this respect with bills of exchange and promissory notes.
The court unqualifiedly held that where the transaction was a
pledge, in the circumstances of the case at bar, the pledgor has a
right of Tedemption, and before a sale can be made by the pledgee
the pledgor is demand of pay-
entitled to reasonable notice, and-
ment of his liability, and there must be default of such payment on
his part and that such a transaction as that disclosed by the case
;
before the court did not amount to an agency of the pledgee for the
pledgor. Upon this last position of the court, and which is not
involved in the present discussion, reference was made to the case
of Crocker v. Crocker (31 N. YfH., 5.0), and the case was com-
mented upon and distinguished, and stated to be unskillfully
reported, and well calculated to mislead {^McNeil v. The Fowth
National Bank in the city of New York, 55 Ba/rb. B., 59).
A little subsequent to the decision of this last case, a similar
decision was made by the New York Court of Appeals, in a case
hereinbefore referred to upon a different point. In this case, it
appeared that the defendants; stock-brokers, at the request of the

plaintiff, and for him, but in their own names and
with their own
funds, purchased certain stocks,. he depositing withthem a " margin ''
of ten per cent, which was to be " kept good," and they " carrying"
the stocks for bim. The court held that the legal relation created
between the parties by this transaction was necessarily that of
pledgor and pledgees, the stock purchased being the property of the
plaintiff, 'and, in effect, pledged to the defendants as security for
the repayment of the advances made by them in the purchase ; and

that a sale of such stock by them, except upon judicial proceedings
or after a demand upon him repayment of such advances
for the
and commissions, and a reasonable, personal notice to him of their
intention to make such sale in case of default in payment, specify-
ing the time and place of sale, is a wrongful conversion by them of
the property of the plaintiff. And it was also held, as it was in other
cases hereinbefore referred to, that in an action by the plaintiff
against them, for such conversion, evidence of a usage that stocks

so held might be sold without notice by the broker, whenever, by
the fall of the stock in the market, the " margin " or ten per cent
deposit was exhausted, was inadmissible, such usage being in direct
variance with the settled rule of law applicable, to the case. Two
of the judges were of the opinion that the transaction was not one
THE SALE OF TBE PLEDGE. 591
f pledging, but .ttey did not dissent fronithe majority of the court
a respect to the proper disposition of the pledge, upon failure of
lie pledgor to redeem.
Hunt, C. J., in his opinion upon this point, said :
" In my
adgment the contract between the parties to this action was in
pirit and effect, if not technically and in form, a contract of
iledge. To authorize t;he defendants to sell the stock furnished,
hey were bound, first, to call upon the plaintiff to make good his
nargin ; and, failing in that, he was entitled, secondly, to notice of
be time and place where the stock would be sold ; which time and
ilace, thirdly, must be reasonable " {Mwrhham v. Javdon, 41 If.
Y. E., 235, 243; and vide Lawrence y. Maxwell, 6Alb.Z. J., 388).
The present Supreme Court of the same State had before it in
some respects, similar to the one in the 41st
863 a ease, in New
fork Eeports, in which it appeared that the defendants agreed with
he plaintiff to purchase stocks for him with their own money, to
lold and sell for him as he should direct, and for the advance^ they
fere to receive a fixed rate of interest and a commission ; and as
eeurity against depreciation and loss, the plaintiff was to deposit
nth them a margin of five per cent upon the par value of all pur-
hases of stocks made by them for him, which margiri was to be
:ept good the whole time.
The low that the col-
court held that, although prices sank so
iterals margin of five per
deposited were no longer equal to the
ent stipulated in the contract, the defendants had no right to sell
t the board of brokers the stocks pledged to them by the plaintiff
3r their security, without notice to or knowledge of the plaintiff.
The court also decided that the notice which should have been
iven by the defendants was not a notice to redeem, but a notice
) make the security deposited equal to the five per cent stipulated
1 the contract, or that the defendants would proceed to sell and

Dnvert the stock into money, and apply the proceeds to reimburse
lemselves for the moneys advanced, with the interest and com-
iis,sions.
And it was also further declared in the case that a sale of stocks
t the board of brokers is not to be deemed a public sale, but that
' is essentially a private sale ; and that a sale of collaterals held
y the pledgees thus made, without notice, is a clear violation of

le duty and obligation they owe the pledgor.
Brown, J., delivered the opinion of the court, and upon this
592 ^-Ar OF PLBDQES.
point said " The defendants claim the right to sell the property
:
pledged, without notice to or knowledge of the pledgor, the

moment prices sink so that the collaterals deposited are no longer
eqnal to the margin of five per cent stipulated in the contract.-
The nature of the business is and precarious that this
so unstable
contingency may happen at any moment, from causes over which
neither the pledgor nor any other person has any control. But
whenever it does happen the defendants claim a right, without a
moment's notice, or an opportunity afforded the owner of the
stock to make the security equal to the stipulation in the contract,
to sell the property pledged, at the broker's board, at such price as
any member present may choose to give, whatever may be the
sacrifice and injury to the owner of the stock pledged. Such a
construction of the contract is utterly subversive of the objects
which the parties had in view when it was made, and destructive
of the rights and interests of the plaintiff. It places him in a
position of entire helplessness, and takes away his property before
he is aware that the margin is insufficient, and'before he is in any -
default for omitting to make and maintain the security equal to

the stipulations of the agreement. * * * The sale which the
defendants made of the plaintiff 's stocks was not public it was essen- ;
tially private. The board of brokers is an association of dealers in

.
stocks, and is not open to the public. Ifone but. members are
allowed to be present at the meetings, except upon invitation.
"When the stock was offered and sold, it was not stated whose stock
it was, nor was the purpose of the sale mentioned or intimated at
the time. * * * This was not dealing fairly and justly with
the property, and was, in my judgment, a clear violation of tlie
duty and obligation of the defendants under the contract " {Brass
V. Worth, iO'Barb. E., 648, 652-654).
This last position, in respect to a sale of pledged stock at the
board of brokers, is in accordance with other authorities. In an
early case before the present Supreme Court of New Tork,
Edwards, P. J., said: "But the objection as to the place where the
stock was sold was well taken. The sale at the board of brokers has
often been held not to be such a public sale as is required in such
cases " {Bankm v. McCullough, 12 Barb. B., 103, 107).
In another comparatively recent case before the same court,
Ingraham, P. J., said " Excluding the authority contained in
;
that note, the defendants could not have sold the stock without
THE 8ALE OF TEE PLEDGE. 598
notice of the time and place of sale ; and in such case the sale
must be public at the time and place mentioned in the notice. But
where the parties agree to have the pledge sold at public or private
sale, without notice, the party pledging the property cannot insist
that he should have "notice " (Genet r. Soioo/rd, 45 Barb. B-, 560,
663).
There have been some decisions of the Supreme Court of the

State of New York, apparently hostile to some of the doctrines
herein enunciated, but they must be regarded as overruled by
adverse decisions in the Court of Appeals. For example, the
cases oi EcmTcs v. Brake (49 Ba/rb. E., 186) am^d Sterling v. Jaiir
don (48 ib., 459) were declared by one of the judges of the Court
of Appeals, in an opinion lately pronounced, as virtually over-
ruled {Markham v. Jaudon, 41 Y. B., 243, per Hvm,t, C. J.).
Jf.
In a very recent case, decided by the Court of Appeals of the

.
State of New Tork, the question as to the legality of the sale of
a pledge was examined and disposed of. The defendants were
employed by the plaintiff as brokers to purchase and sell stock on
his account, they advancing the money and holding the stocks,
and he securing them by the deposit of a margin. On the 18th

of April, 1864,when stocks were falling, the stock of the plain-
tiff by the defendants not being of a sufficient value to secure
held
the defendants for the moneys already advanced for him, they
demanded of the plaintiff a further margin. The demand was

made by a written notice, left at his house. He was out of town
at that time, and' continued so for ten days. On the 19th, with-
out notifying him of the intended sale, or its time or place, cer-
tain shares of the plainfiff 's stock were sold. On his, return the
plaintiff disavowed, the sale, to which avowal the defendants
acceded, and told the plaintiff that they would not consider the
sale as having been made on his account. On the 28th of April,
would be sold
they served on the plaintiff a notice that the stocks
at auction, at a specified time and
which they were sold,
place, at-
and the amount credited to him. For some days previously they
had repeatedly called upon him to make up his margin. The
court held that both parties having agreed to consider the sale of
the 19th of April as a nullity, the plaintiff was precluded from
maintaining an action against the defendants for a conversion, by

reason of their making such sale, without previously notifying
him of the time and place of the same that both parties having
;
75 -
594 AW
It OF PLEDGES.
agreed and acted upon the assumption that there was no sale, and
consequently no conversion of the plaintiff's stock, on the 19th of
April, the question of the effect upon the right of action of tha
restoration of the property to the owner after conversion was net
involved {Stewart v. Drake, 5 Albany Law Journal, 43).
Upon this point, therefore, it may be affirmed as the settled
doctrine of pledges, as declared by the courts of Ifew York, that
the pledgee never can sell unless there is a waiver, without first
calling Upon the party, he is within reach, and requiring him

if
to make his pledge good, and then giving him a reasonable notice
of the time and place of sale, and the sale must be a public one
and fairly conducted. And, unless there is an agreement to the
contrary, the pledgee can never proceed to sell the pledge until
default of the pledgor. This is the doctrine of pledges, as declared
in New York ; and, as the subject is not regulated in the by
least
statute in this State, the decisions of the courts of New York

tipon the subject will be recognized as authority in all the Ameri-
cari States, unless in an occasional State there may be a statute
changing the rule ; and if there should be such an instance it will
be noted in a .subsequent chapter. But the courts of many of

the States have expressly recognized the doctrine of the New
York courts upon the subject.
The Supreme Court of Texas has decided that a pawnee, when
his debt is due, may foreclose and sell under a judicial sale, or he
may sell at auction, without foreclosure, upon giving reasonable

notice to the debtor. A stipulation in the contract of pawn, that
if the pawn is not redeemed within a speqjfied time, the right of
property shall be absolute iu the pawnee, the court declared to be

of no effect, and did not change the ordinary rule [LuckeUs v.
Townsend, 3 Tex. B., 119).
The Supreme Court of California has held that securities
assigned as collateral security for money advanced cannot in

general be sold without demand and notice to the assignor. But
where the plaintiff had placed certain securities, accompanied by
an absolute assignment in writing, in the hands of the defendant

in return for money advanced, and was in the habit of directing
the defendant to buy his drafts, " when in funds, from the pro-
ceeds of securities placed in your hands," the court held that the
defendant had full authority to sell such securities without demand
was stated that, in general, where securities are
or notice, and it
;
TUE SALE OP TBE PLEDGE, 595
bsolutely assigned, the presumption is that, on selling, demand

id notice to the assignor is unnecessary {Syatt v. Argenti, 3
1al.B.,l^\).
The Supreme Court of Iowa has made a similar decision, hold-
ig that where the pledgee executed to the pledgor a receipt for
roperty pledged to secure a note, stating that if the note was not
romptly met at maturity the pledgee reserved the right of selling
18 property at private sale, the proceeds to be applied to pay' the
ebt, and any surplus to be paid to the pledgor, this agreement
lianged the legal rights of the parties only by dispensing with
otice to the debtor to redeem, as prior to the creditor's right to
sll. And it was further held that the pledgee in such a case was
ot bound to sell the pledge at the maturity of the note. But the
eneral doctrine was stated that, after maturity of his debt, the
ledgee holding property, to secure the same may either (1) pro-
sed personally against the pledgor, without selling the property,
r (2) file a bill in chancery and have a judicial sale under a regu-
ir decree in foreclosure, or (3) sell without judicial process, upon
iving to the debtor reasonable notice to redeem {Robinson v.
Tv/dey, 11 Iowa H., 410 ; vide Hamilton v. State BamJc, 22 ih.,
06).
The Supreme Judicial Court of Massachusetts has held that a

lie of a naked pledge can Only be made at public auction, with
otice to the pledgor of the time and place thereof. And in the
ime case it was held that if the makers of a promissory note
eliver to the payee thereof a bond as collateral security, with
athority to pledge it to a third person as collateral security for
ther notes held by him, on which the payee is liable as indorser
Qd the same is so pledged accordingly, the payee has no authority
) bind the makers by assenting to a sale thereof, without notice
) them ; and that if he does so assent, and the bond is sold for
sss than its reasonable and fair value, so that only a small amount
••
left after paying the notes held by such third person, to apply
by the payee, the makers will only be liable to
n the note held
im or to an indorsee who took it after its maturity for such

mount as would remain due, upon accounting for the residue of
16 full, reasonable and fair value of the bond, after the payment
) the last pledgee ; and that the fact that after the sale a notice
lereof was given by the payee to the makers, with information
lat they might redeem the bond within thirty days at the same
596 LAW OF PLEDGES.
price and expenses, is immaterial ( WashJmm v. Pond, 2 Alleris

R., 434: ; amd vide Fletcher v. Dickinson, 7 *5., 23 ; Pa/rh&r v.
Brancker, 22 P«c^. jB. 40).
The Supreme Conrt of Pennsylvania has laid down the rule in

general terms that the bailee of a pledge or pawn must give notice
to the pledgor of an intent to sell after default of payment ; and
also of the time and place of sale, in the absence of a contract to
sell ex mero moinib (Davis v. Fwnk, 39 Pevm. P., 243).
The Supreme Court of the State of Connecticut has declared
that a creditor having personal property pledged to him as security
same until he has called on the debtor
for his debt, cannot sell the
to redeem; and that he must also give the debtor notice of the
time and place of sale {Stevens v. HwrWert Bomk, 31 Gown. P.,
146).
The Supreme Court of Pennsylnania, in a more recent case than
Davis V. Punk, decided that the holder of a collateral security
cannot appropriate it in satisfaction of the debt intended to be

secured, at his own option, unless in pursuance of a contract to
that effect, nor sell it without first giving the pledgor notice, in
order to redeem {Diller v. Punbaker, 52 Penn. P., 498). And
in a still later case the same doctrine was repeated and in addi- ;
tion was held that the notice njust specify both time and place
it
of the proposed sale (GomynghamUs Appeal, 37 Penn. P., 474).

In a late case in England it appeared that the plaintiff deposited
with the defendant two pictures as security for the payment of his
promissory note for five pounds, payable in one month. At the
end of the time, August 6th, the defendant demanded the money,
and it was arranged that a further time should be allowed for the
payment of the note, the plaintiff paying ten shillings per month
for the accommodation. On September 17th the defendant wrote
the plaintiff that unless his claim of six pounds ten shilhngs was
paid he would sell the pictures, which he accordingly did. The
Court of Common Pleas held that a notice that he would sell,
unless an excessive sum was paid immediately, was not such a notice
as would justify a sale {Pigot v. GvMey, 15 C. P. P. N. 8., 701).
It has been held in the State of Maryland that an agreement, by
the pledgor of shares in the capital stock of a corporation, that the
pledgee might sell the stock " without further notice," if the loan
it was given to secure was not paid on one day's notice, according
to agreement, dispensed with all notice of sale, and only left upon
;
:
THE SALS OF TBM PLED&E. 597

and fairly for the best
the pledgee the obligation to sell publicly
price he could obtain {Maryland, etc., Inswamce Company v.
Bakymple, 25 Md. B., 242 Baltimore, etc.. Insurance Gom-

;
pcmy V. Dalrymple, lb., 269). And the same court held that an
agreement, authorizing the pledgee of shares in a corporation " to
give the stock to sell," permits a private sale by a
any broker to
broker for the market price (Bryson v. Ra/yner, 25 Md. R., 424).
The Supreme Court of Illinois had a case before it in which the
following were the facts : The plaintifE stored corn in the defend-
ant's warehouse upon the following agreement by the defendant
''February 9th, 1860. "We hereby agree to store ear-corn for
(the plaintiff) till the first of June next for three cents per bushel
two cents for shelling. K sold before the first of June, we are
not to charge for shelling ; if not sold by the first of June,we are
to charge one-half per cent per month till it is sold. The com to
be good and merchantable." The court held that after the
first of
June the relation of the parties became analogous to that of

pledgor and pledgee, and that upon giving the proper notice to the
plaintiff might then sell the corn at public auction
the defendant
for the charges upon it. And it was further held that, if in such
a ease the defendant sells the com in an illegal manner, be will be
liable for the value thereof at the time of the demand {Cushmcm
V. Eayes, 46 III. R., 145).
It may be is no agreement in the contract
afiirmed that if there
of pledge that the pawnee of property shall sell it, he cannot be
compelled to do so {BaMam, v. Maker, 1 Pich. R., 400). And a
creditor, holding collateral securities for his debt, need not sur-
render such securities to the debtor in order to enforce his debt
directly against him. The creditor is entitled to hold them until
he gets his pay, and then the securities belong to the debtor {Bcmh
of Rutland v. Wood/ruff, 34 Yt. R., 89 ; amd vide Whitviell v.
Brigham, 19 Pidk. R., 117).
In the State of Louisiana, where a party holds goods merely as
security for a debt,with a privilege on the same, the courts have
held that he has no right to prevent the seizure of the goods by
another -party also claiming a privilege against the owner, and it
was decided that the right of a party holding goods in this manner
is hmited to a judicial proceeding to make his privilege available
against the goods {Flowmoy v. Millmig, 15 La. An. R., 4T3).
In the State of New York, in a case where it appeared that a
598 LAW 0¥ PLEDGES.
banking association, having borrowed money, gave its certificates
of deposit, payable upon time, and in form resemblrag promissory

notes, and also as collateral security for the certificates pledged cer-
tain bonds secured by a deed of trust, which bonds and deed had
been previously executed for another purpose, the Court of Appeals
held that although the certificates of deposit were illegal and void,
the parties lending the money had, nevertheless, a right to hold the
bonds as security for the money loaned {Cv/rtia v. Leamitt, 15 N.
T. B., 9).
The Court of Queen's Bench of England have recently made an

interesting decision respecting the rights of a pledgee, in case of a
pledge to secure an illegal claim. The plaintiff deposited with
the defendant the half of a £50 bank note by way of pledge to
secure the payment of money due from the plaintiff to the defend-
ant. The debt was contracted for wine and suppers supplied to
the plaintiff by the defendant in a brothel kept by him, to be there
consumed in a debauch. The plaintiff having brought an action
to recover the half note, the court held that the maxim in pa/n
delicto potior est conditio possidentis applied ; and that as the
plaintiff could not recover without showing the true character of

the deposit, and that being on an illegal consideration to which he
was himself a party, he was precluded from obtaining the assist-
ance of the law to recover it back (Taylor v. Chester, 4 Qtiem's
Bench ^.,309).
The Supreme Judicial Court of Massachusetts has lately decided
that a pledgee, with power to sell the goods and apply the proceeds
on the by employing the pledgor as
debt, does not forfeit his lien
'agent to make the sale, allowing him to contract for it in his own
name, and delivering the goods on his order to the purchaser
{Thay&r v. Dwight, 104 Mass. B., 254 and vide Mather v. Staples,
;
&AUen'sB.,S4:).
The Supreme Court of Pennsylvania has held that an adminis-
trator,having assigned to a creditor of the decedent certain claims
of the estate as collateral security, there being then no evidence of
insolvency, such creditor is not bound to reassign them except on
payment or tender of the whole amount due him {Kithra^s Estate,
17 Pmn. B., 416).

In the State of MaF^land, a party who had pledged with a bank
certain stock, as security for a specific debt, wrote a letter to the
bank, authorizing the bank " to hold the stock as a general collate
TBE SALE OF THE PLEDGE. 599
al security for all the writer's liabilities to the said bank at present
jxisting, or whicli may hereafter be incurred by him." The court
leld that the bank, under their authority, had the right, after pay-
ment of the specific debt, to apply the surplus of the stock, jjro
ffflto, to all such liabilities {Eichdberger v. Mv/rdock, 10 Md. B.,
J73).
In the State of Alabama, an agreement by which cattle were to

36 kept and fed daring the winter, and the stock to be liable for
;he expense of keeping them, with authority to the bailee tg sell
;hem to pay such expense, was held by the court to give to the
DaUee a right to sell so much of the stock as might be necessary
;o pay him his debt ; but ifwould be a conversion.
he sold more, it
&.nd it was further held and declared that a purchase by the

bailor of property sold at public auction, to enforce a lien of the
bailee, is not void ; but voidable at the election of the party whose
;itle is sought to be divested (
Whitloch v. Hoa/rd, 13 Ala. B.^
m).
Where a negotiable security is taken as collateral to an existing
iebt, may endeavor to make it available by a suit and,
the holder ;
'ailing of success, he may resort to his original remedy, without
•estoring that taken as collateral. And, indeed, a creditor who has

I pledge from his debtor is, in no case, C9nfined exclusively to that
lecurity ; but may, unless there is some agreement to the contrary
lave his action {Oomstock-f. Smith, 10 SJiep. B., 202 WhitweU v.
;
Brigham, 19 Pick B., IIY).

A bill in equity will lie to obtain the sale of a pledge made to
iecure an unliquidated demand, without first proceeding at law to
iscertain the damages {Vcmpell v. Woodward, 2 Sand. Ch. B.,
143).
Where a pledgee of goods authorizes the pledgor to sell them

md pay over the price to him, and the pledgor accordingly sells
he goods to a third person, who agrees to make payment to the
)ledge8, such pledgee has a right of action against the purchaser,
md he is liable for the whole price, and cannot set off a debt due
lim from the pledgor {JVottebohm v. Maas, 3 Bob. [N. F.] B.,
147).
In an action by a pledgee against a sheriff for a conversipn of

;oods pledged, it seems that the sheriff who has seized them under
' lawful writ in his hands will be treated as in privity with the
'Wner, the pledgor, provided he has pursued the law in making
600 LAW OF PLEDGES.
feuch seizure, and will be held only for the plaintiff's special inte-
rest in the goods
but in any other event, he will be treated as a
;
stranger, and held for their full value {Treadmell v. Bamk, 34 Gal
R., 601).
Where several things are pledged, each is deemed hable for the
whole debt or other engagement, and the pledgee-may sell them
from time to time till the whole debt or claim is discharged. If
Anything perishes by accident or casualty without his default, he
has a right over all the residue for his whole debt or duty, and he
may sell not only the things pledged, but also their increments.
But when he has once obtained an entire satisfaction, he can pro-
ceed no farther ; and, if there is any surplus, it belongs to the
pledgor. And the pledgee rday select one of the things pledged
without affecting any of his rights over the others. Such is clearly
the doctrine of the elementary writers, and thie doctrine is universally
recognized by the courts {Yiê Stoty on Bmlm., § 314, and
cmthoriUes cited ; also 1 £ae. Ahr., int. Baikn., E).
The Court of Appeals of the Stafe of !N"ew York have recently
made an important dedsion relating to the rights of pledgees. The
plaintiff delivered and left with his brokers, as a pledge, a certifi-
cate of shares of stock, having indorsed thereon the form of an

assignment expressed to be " for value received," and an irrevocable
power to make all necessary transfers. The name of the transferee
and attorney and the date were left blank. This document was
signed by ^
plaintiff. Subsequently the brokers, without the
consent of the plaintiff, pledged the stock to the defendant for a
much larger sum than the amount of their lien thereon. The court
held that the plaintiff having left the certificate in the hands of the
brokers, accompanied by an instrument bearing his own signattire,
which purported to be for a consideration, and to convey the title
away from him, and to empower the bearer of it iri-evbcably to dis-
pose of the stock, the consequence of a betrayal of the trust imposed
on the brokers should fall on him who reposed it. Accordingly, it
was further held that the defendant, having advanced honajide on
the credit of the shares and of the assignment and power exerted
by the plaintiff, was entitled to hold the stock for the full amount
so advanced and remaining unpaid, after exhausting other securities
received for the same advance {McNeil v. Tenth NationiA £mh;
5 Albany Lam Journal, 48 8. C, 46' ii^. T. R., 325).
;
It is very clear that the parties may waive any mere iiTegulari
rLED gee's BiaHTS AirCEB SALE. 601
)B in the sale of a pledge. In a case before the old Supreme

)urt of the State of New York, the property pledged was 400
ares of the Mechanics' Banking Association. Default was made
payment of the debt, and the creditor sold at the board of
the
okers, after having given the debtor two daj^s' notice of the time
d place of the sale. At the time of the notice of the contem-

ated sale, the pledgor made no objections as to its sufficiency.
16 court held that, inasmuch as the contract of pledge contained

I restrictions as to the mode of selling the stock pledged, and
me could be implied from any established custom proved in the
36, the sale was properly made at the board of brokers. Nelson^
J., in his opinion, said
" The defendant was duly advised of
:
e time and mode of sale, and made no If he

objection to either.
IB he should
not satisfied with a sale at the board of brokers,
en have spoken. His silence indicated an acquiescence, and
ist have been so understood by aU parties concerned. If the
le was fairly made in accordance with the notice given to the
fendant (and there is no pretense to the contrary), he should be
"
;opped its propriety in respect to mode and place
from disputing
VillovyMyy-y. Oomstooh, 3 SilVs E., 389, 392). And the
preme Court of Wisconsin has expressly held that the pledgor
goods may waive the notice of sale to which the law entitles
n {Mowry v. Wood, 12 Wis. B., 413).
Perhaps it should be added that upon the sale of a pledge, the
sdgee cannot be permitted to become the purchaser. This is the
le, and it is- regarded as necessary, in order to secure fidelity and
od faith on the part of the pledgee.
CHAPTEE XLYI.
^HT8OF THE PLEDGEE AFTER SALE OF THE PLEDGE —
DISTErBTITIOir
yF THE PEO0EED8 OF THE SALE LLiBILITIES OF PLEDGEE IN
BESPEOT TO NEGOTIABLE PAPER —
HIS LIABILITY TO ACCOUNT FOE
CHE PEOPEETT IN PLEDGE.
[t is a matter of considerable moment to understand properly

at are the rights of the pledgee, after the pledge has been sold,
1 especially where there may be adverse claims upon the fund
)duced by the sale. This subject is treated at large in the
76
602 IÂW OF PLEVGES.
Eoman law, and Judge Story adverts to a few of the leading dis-
tinctions in his work on Bailments.
In the first place, says that distinguished author, those creditors
who have what are called privileged debts in the Eoman law, that
is to say, debts in respect to which a lien or right of preference
on the property, enjoy a priority of payment, and are to be
exists
paid before the pawnee and privileged creditors of equal rank
;
and degree are to take pwri passu.

In the next place, those creditors who, as mortgagees or pawnees,
have a specific title to the thing, take according to the priority in
point of time of their respective titles, unless some pecuhar cir-
cumstances intervene to vary the rule.

In the next place, if the pledge is for the joint benefit of several
creditors, each of them is entitled to share equally with the others
according to his debt. But if the thing is pledged severally to
two creditors, without any communication with each other, and
one of theia has obtained the possession, he is entitled to a pre-
ference according to the maxims. In pa/ri causa possessor potwr'
haheri debet y In csquaU jwe melMr est conditio possidentis.
In the ease of a sale of a pledge, these rules are constantly
obseBved in the distribution of the fund ; so that every creditor
who possesses a superior right or privilege will be entitled to
maintain it, and to receive a full compensation from the fund,
before the creditor who holds under a mere contract of pledge
from the debtor. '
In the next place, if the thing is pledged to one and the same
creditor for several debts, and the pledge, when sold, is not sufB-
cient to pay aU the debts, the money arising from the sale is to be
applied proportionally to all debts, to extinguish the sameô
tanto. And Judge Story observes, few cases have arisen upon
this subject in the common law and ; it would be unsafe to rely
wholly upon the civil law, as furnishing safe analogies for our'
guidance. In the absence, however, of any authorities, the civi-
lian's inay assist our inquiries ; and for this purpose Domat, in an
especial manner, may be consulted with advantage. Judge Story
refers for all these positions to Pothier, Aylifie, Domat and other
writers upon the civU law {Story on Baihn., §§ 312, 313).
was held by the Superior Court of the city of New York,
It
that where an agent, in getting a note discounted for his principal,
leaves, as collateral security, a larger note of his principal having
APPLICATION OF PROCEEDS. t)U3
orter tim'e to run, wliicli larger note is paid at maturity, the

seeds thereof are to be applied to the payment of the smaller
( when it becomes due ; and the balance belongs to the princi-
and cannot be applied to pay a debt of the agent {Geffchen

lingerland, 1 Bosw. R., 449).
he question of the proper application of the proceeds of the
was recently before the Supreme Court of Florida,
of a pledge
pledged a quantity of cotton as security for his notes heldby a
k, and retained the cotton to be sold, and the proceeds applied
he Mquidation of the notes. The cotton was sold, and the

leeds were deposited by E. to his own credit in the bank, and
rward all drawn out by him without directing the bank to

:e sums to the liquidation of the notes,
application of these
was too late to demand the appropriation
court held that it
he balances to the payment of the notes, since K., notwith-
ding the existence of the balances after the notes became due,
lected to make such appropriation himself {Handall v. Peters,
na. R., 517).

he rule is thus laid down in the civil law :
" Where a debtor,
^ng himself to a creditor for several causes at one and .the
e time, gives him pawns or mortgages which he engages for
security of all debts, the money which is raised by the sale of
pawns or mortgages shall be appropriated in an equal propor-
to the discharge of every one of the debts " {Dom., b. 4, tit.
i,plT). But if the debts were contracted at different times

a the security of the same-pawns and mortgages, so as that the
;or had mortgaged for the last debts what should remain of the
ges; after payment of the first, the moneys arising from the
gas would, in this case, be applied in the first place to the dis-
ge of the debt of the oldest standing. And both in the one
the other case, if any be due on account of the debt
interest
:h is to be discharged by the payment, the same wUl be paid
re any part thereof be applied to the discharge of the princi-
Vide Perry v. Roberts, 2 Ch. Cos., 84 ; Styart v. Rowlcmd,
ow. R., 216).
ich would seem to be the general principles in respect to the
ibution of the proceeds of the sale of a pledge by the pledgee,
as stated in the preceding chapter, and such is the law, that
re several things are pledged, each is liable for the whole debt
her engagement, and the pledgee may proceed to sell them
604 LAW OF' PLEDGES.
from time to time, untU the debt or other claim is completely dig
charged. But ia this case the proceeds of the sale are to be dis-
posed of upon the same principles, as where a single thing onlj ia
pledged; and any surplus remaining must be paid over to the
pledgor.
An interesting case involving this question Recently came before
the Supreme Judicial Court of the State of Massachusetts. The
defendants, who were partners, after pledging goods, with an
invoice, as collateral security for a debt owed by them and paya-
ble on demand, dissolved the partnership, and, in consideration of
the agreement of one Lamb to pay the partnership debts, con-
veyed to him all the property of the fiiiiij made him their attorney
to demand all the partnership, effects, and execute releases there-
for as fully as the firm might do, and covenanted not to receive or
release any demands of the firm or interfere with its affairs with
out his consent. The pledgee had notice of this contract, but
never agreed to substitute Lamb as his debtor. Lamb then paid
to the pledgee part of his debt, and took from him, with his con-
sent, what, so far as he knew, or as was shown by the invoice, was
a proportional part in value of the pledged goods, though in fact
it was a much more valuable portion. Subsequently (Lamb hav-
ing died insolvent) he made demand on the pledgors for the bal-
ance of the debt, and then caused the rest of the goods to be sold
by auction, bid them in himself, and rendered to the pledgors an
account of the sale. The court held that, in respect to the goods
delivered by the pledgee to Lamb, he was not liable to account to
the pledgors for any greater sum than Lamb paid to him, and it
was further held that he wafl-not entitled to disaffirm the sale of
the rest of the goods and return them to the pledgors without
their consent ; but that he could recover from the pledgors only
the balance of the debt after deducting the proceeds of the sale.
Gray, J., who delivered the opinion of the court, regarded the
case a very plain one, and, after stating the facts, said " Under :
these circumstances, the plaintiff 's delivery to Lamb of a portion

of the property pledged, on receiving payment of a sum which
was, so far as was known to the plaintifiE or appeared by his
invoice of the goods pledged (though not in fact), a proportional
part of his debt, was not such a dealing with or disposition of his
collateral security as to make him liable to account with the

OBIiTGATTON OB PLEDGOR. 605
efendants for any greater sum than that so received by him from
amb.
" But by the plaintiff's subsequent sale by auction and purchase
'
the rest of the goods pledged, his debt was paid and discharged
) the extent of the sum bid by him and stated in his account after-
ard rendered to the defendants. The balance of his debt, after
educting this sum, he is entitled to recover in this action." Judg-
lent for the plaintiff accordingly {Famlkner v. Mill, 104 Mass. B.,
38, 191, 192). The debt or engagement for which a pawn or
ledge is given is the princiipal obligation, and the obligor is per-
mally bound to no pledge had been given. The
fuljB.ll it, as if
isult of this principle is, that the creditor may bring an action for
le recovery of the debt at any time after it becomes due, without
Qy surrender of the pledge. And if the pawn or pledge be lost,

p surrendered to the pawnor or pledgor, or surreptitiously obtained
y the latter or if the pawnee or pledgee convert the pawn or

;
ledge to his own use, and the pawnor or pledgor recover damages
fom him, on that account, for its value, the original obligation sur-
ives (1 Bov/o. Inst., 425).
Judge Story expresses the rule thus :
" The possession of the
awn' does not suspend the right of the pawnee to proceed person-
lly against the pawnor for his whole debt or other engagement
athout selling the pawn ; for it is only a collateral security. If
18 pawnor, in consequence of any default or conversion of the
awnee, has, by an action, recovered the value of the pawn, still
le debt remains, and is recoverable, imless, in such prior action,

'<
has been deducted. It seems that, by the common law, the

awnee, in such an action, brought for the tort, has a right to have
16 amount of his debt recouped in ths damages" {Story on
iaiim., § 315).
If, upon a sale of the pledge or pawn, the proceeds are more'
lan sufficient to discharge tho debt or obligation of the pawnor
p pledgor, the pledgee or pawnee must pay over the surplus to
le pawnor or pledgor ; and this involves the corollary that if
16 things pawned are insufficient to pay the debt, or other duty,

16 deficiency continues a personal charge on the debtor, or other
mtraoting party, and may be recovered accordingly; because,
Ithough the security covers, yet the duty remains, inasmuch as
16 money lent, or the debt, remains unpaid. And in a case where
le opposite view was insisted on by the counsel for the defendant,
606 i^TT OF PLEDGES,
the court, after proof of many particulars to induce a belief that in

these loans no regard was had to the personal security, left it to
the jury upon this point, that when money is generally lent upon
a pledge, the law will not deprive the lender of his remedy against
the person ;and that to discharge the person of the borrowei'
there must be a special agreement to stand to the pledge only
{South Sea Gom^wny v. Dwncowh, 2 Sbr. R., 919).
Mr. Corbett cites a case from a MS. Year Book, temp. Edw. I,
in Lincoln's Inn library, in which a defendant, in an action of
debt for money lost, pleaded that she had deposited jewels with the
plaintiff as a security for the repayment of the loan, which jewels
the plaintiff had not returned. The court refused to give judg-
ment for the plaintiff, saying that they had no power to award
restitution of the deposits {Cod., I'ih. 8, tit. 14, 1. 20, 24). And
in a case before Lord Eedesdale, in 1803,, the defendant, a mort.
gagor, moved for an injunction to restrain the plaintiff, or mort-
gagee, from proceeding at law on the bond while suing in equity
for a foreclosure. The deeds had got into the possession of the
mortgagee's wife, who was at variance with her husband, and her
attorney claimed a lien upon them. The lord chancellor said that
though a mortgagee had a right to procteed on his mortgage in
equity and his boiid at law at the same time, the mortgagor also
had a right not to be obliged to pay the money on his bond if he
is in danger of not getting back his title-deeds for the mortgagee
;
can have nothing but on condition of reconveying and giving up

the title-deeds which he has received. His lordship granted an
injunction to stay proceedings at law, and the money- to be paid
into the bank, to remain until the title-deeds were secured and
reconveyance had ; the defendant to pay the costs {Schoole v. Sail,
1 Sclwal and Lefroy's S., 111). And Story mentions several
cases decided by the Supreme Judicial Court of Massachusetts, to

the effect thatif a pawnee causes the pawned goods to be attached
in a personal suit against the pawnor for the very debt for
which they were pledged, the right to the pledge is gone though ;
not if the suit was brought to recover another debt than the one
secured by the pledge. And, further, that the pawnee has no
right to attach other property of the pawnor for the debt secured
by the pawn, without first returning the pawn to the pawnor

{Story on Bailm., § 366).
But notwithstanding the weight of these authorities, it may be
;
pawnee's account EOS TBE PLED&E. 607
egarded as reasonably clear that the possession of the pawn is
ot, of itself, a bar to proceedings against the pawnor, on his per

onal hability to the pawnee, although it is possible there might
le equitable circumstances in a given case which might qualify
he general rule in such cases. Certainly, there can be no doubt
hat where there has been a fair sale of the pledge, and the pro-
eeds are insufBcient to liquidate the demand, the pledgee may
lave an action against the pledgor for the balance.
It has been often held that a chattel or chose in action, pledged
or the payment of a debt, is not released from the pledge by the
ireditor committing the debtor's body to prison upon an exe-
lution for the debt and upon the same principle the debtor is
;
)ersonally responsible forthe payment of the debt or performance

if which the pledge is made to secure and all that
the obligation ;
le can claim of the pledgee is, that he return the pledge or account
him for the same ( Vide Morse v. Woods, 5 iT. H. E., 297
JAapman v. dough, 6 Vt. B., 123 Trotter v. Crochet, 2 Porter's
;
R., 401 ; Sdlick v. Mimson, 2 Aik B., 150).

The pawnee must not only account to the pawnor for the entire
)roceeds of the sale of the pawn, but he must render an account
if all income, profits and advantages derived by him from the

)ledge, when such an account is within the scope of the bailment,
harging against these the incidental expenses incurred in respect
the pledge. Pothier thinks that the pawnee goes further, and
hat he is bound to account for all the profits and income which he
night have received from the pledge but for his own negligence
Pothier, De Nomtissement, n. 36 ; Pcmd., h. 4, Pit. 18, p.
Ayliffe,
•33). It has been said that this would doubtless be true, in the
lommon law, in all cases where there is an implied (or express)
employ the pledge at a profit as if there is a pledge

ibligation to ;
if money, and it is agreed that it shall be let out at interest by the
lawnee and he has neglected his duty, or if the pledge is. to be

imployed in its usual business, upon profit, as, for example, a
erry-boat at a ferry, or a fcoach and horses in the customary car-
iage of passengers {Story on BaMm., § 343).
When slavery existed in the southern States itwas customary
put in pawn a slave to secure a debt or loan ; and in such cases
t was held that the pawnee was bound to account for the services
f );he slave, or rather for the net profits of the slave's labor {Sm'^
on v. HolUday, 1 N. C. Lom Jowrnal, 87). And the same rule
608 JÂW OF PLEDGES.
would apply where the pledge consists of cows, horses or other

cattle, provided it could be reasonably implied from the contract
of pledge that the pawnee is to have the use and labor of the ani-
mals. And Judge Story understands that the Koman and foreign
law, in all cases of this sort, implies an obligation, to account, from
the very nature of the pledge {Story on Bail/m., § 343).
And Story says that there was a peculiar sort of pledge
or mortgage in the Eoman law called Antiohresia, whereby the
creditor was entitled to take the profits of the pledge; as, for
instance, of lands or animals, as a compensation for and in lieu of
interest. This mode of contract was not held illegal in the Eoman
law, unless was made a cover for some illegal act or for some
it
oppressive usury. But in the modern continental nations it seems,

from its tendency to give the creditor an oppressive power and to
cover usury, to be generally discountenanced for in all such cases
;
the party is bound to account for the profits, deducting his expenses,
and then is simply allowed his interest. This was, at le&st, the
rule at the time Mr. Justice Story got out his celebrated Commen-
taries on the Law of Bailments, and probably the subject is still
regarded in the same light {Stm-y on Ba^m., § 344).
It is not very probable that the courts would apply the doctrine
of trusteeship, inculcated by Pothier, to the extent that the pledgee
shall account for all the profits and income which he might have
received from the pledge but for his own neglect, unless there
be an express agreement to that effect, or an irresistible implica-
tion, from the circumstances of the case, that the pledgee shall use
the pledge to advantage. It is sufficient, in ordinary circumstances,

that the pledgee shall account for the profits of the pawn he
has actually employed, being allowed, at the same time, for his
and trouble on account of the pledge. This is

loss of time, still
the doctrine which has been applied in cases of another nature,

but involving this same principle, and there seems to be no good
reason why it should not be applied to cases of pawn. As a
general thing, the matter will be determined by the express agree-

ment of the party, excepting where it shall appear that the pawnee
has actually derived advantages from the pledge, when he must
account for the same. TTpon this subject the authorities are, in the
main, qiyte harmonious.

The Supreme Court of the State of Indiana has held, in respect
to the pledge of negotiable paper, that where 9. creditor holding
LtABILITT OF PLEDGEE. 609
Buch paper against third parties as collateral security, to be applied

in payment of his claim, fails to realize on them, through his own
laches, his debtor has a right to consider it satisfied, declaring that
incumbent on the creditor, in such case, to show reasonable
it is
dihgence in attempting to collect them {Slevin v. Morrow, 4 Ind,

B., 4:25). And the Court of Common Pleas of the city of New
York has very properly held that, where a note was placed in the
creditor's hands before maturity by a debtor, to be collected and
applied by him to a debt due him by such debtor, a subsec^ûent
agreement by the debtor to compromise the note for less than the
face of it will not hind the creditor and pledgee, unless notified
by Mm {Grant v. Holden, 1 E. D. Smith's R., 545).

In a case involving this principle, before the present Supreme
Court of the State of New York, the manner in which the pledgee
of negotiable paper ordinarily holds the same was examined. The
plaintiff took two notes against 'A. as collateral security for the pay-
ment of a debt against B. One of the notes he transferred to C,
who obtained judgment thereon. The other was prosecuted to
judgment by the plaintiff himself, and both judgments were subse-
quently assigned by the respective plaintiffs to D. It did not
appear upon what terms the first note, was transferred to C. and
the judgment upon it assigned to D., nor upon what terms the
plaintiff assigned his judgment to D. The court held that, by
intendment of law, the transfers were absolute and without recourse
10 the plaintiff; and that, therefore, the principal debt must be
regarded as satisfied to the plaintiff out of the collateral securities.
It was also held that would be presumed that the note and judg-
it
Jients were transferred for the full amount appearing to be due

ipon their face but that if, in fact, they were transferred for less,
;
t would be at the creditor's own loss, and he would be regarded as
naving elected to accept satisfaction out of the collateral, and

TOuld be bound by such election, and could not afterward resort to
the principal to make up the deficiency. And it was declared to
the effect that a creditor holds collateral securities as the agent or
trustee of his debtor, and whenever he undertakes to transfer them
without the authority of the principal debtor, the law will hold
that he has elected to take them for what appears to be due on
their face, in satisfaction, to that extent, of the principal debt
{Eamh V. Hmchdijf, 17' Barb. R., 492).
The general rule of lawj where a person receives bonds and

11
610 LAW OF PLEDGES.
notes for collection, as collateral security for a debt, is that he ib
bound to use due diligence ; and if they are lost through his negli-
gence, by the insolvency of the makers, he is chargeable with the
amount {Nolomd v. Gla/rk, 10 B. Mon. E., 239). But the follow-
ing case came before the Supreme Court of the State of New Hamp.
shire The defendant pledged as collateral security for a debt due the
:
plaintiff tjvo notes, amounting to about seventy dollars, which the

plaintiff was to collect, and deduct therefrom the sum due him
The maker possessed ample property, from which the notes might
have been collected, and the plaintiff delayed enforcing payment
of them for fire months, at the end of which time the maker
became insolvent. It was not suspected that the maker of the
notes was embarrassed, nor did the defendant request the plaintiff
to collect the notes. Under these circumstances the court held
that the pledgee was not chargeable with the amount of the notes,
and that he had his action against the pledgor for the amount of
his debt, which the notes were taken to secure {Goodale v. Rich-
ardson, U N. H. R., 567).
And in the State of Indiana, in a case before the Supreme Court,
it appeared that a judgment debtor deposited with the judgment
debtor's attorney certain claims as security, taking receipts there-
for, in which the attorney engaged to apply so much of the pro-
ceeds as he should be able to collect to the payment of the judg-

ment. The court held, in a suit in chancery by the debtor, that he
was not entitled to a credit for the said claims until they were col-
lected, unless they had been lost, or had remained uncollected

through the creditor's negligence {Kiser v. Ruddick, 8 Blackf. E.,
382).
The Supreme Court of Louisiana has held that where a note is
deposited as a pledge, and it was shown that the maker wsg, good
or solvent for some time after the maturity of the note, the pledgee
will be responsible for the amount.And this, on the ground that
the note must be presumed to have been paid or its amount lost
by the neglect of the pledgee {Commercial Bamk of New Orleans
V. Martin, 1 La. An. R., 344). And the same court held that one
who lends to an agent money for his private use, and receives from
him, as security for its repayment, a pledge of a claim against a
third person, known by the lender to belong to his principal, the
amount of which he afterward receives, will be bound to account to
the principal for its amount {Reeves v, Smith, X La, An, R,, 379^
LIABILirr OF FLEDGME. 611
le Supreme Court of Michigan has held that where a party

iives negotiable paper from his debtor, with the debtor's
jrsement, as collateral security for his demand, and not as

Qt merely, it is his duty to present the same for payment when
, and take the proper steps to charge the debtor as indorser j

that, failing to do this, he makes the paper his own {Jewnison
ÔArlcer, 7 Mich. B., 355). And the Supreme Court of Wiscon-
has decided that where negotiable paper is received in pledge
ecurity for the payment of a debt, the pledgee may collect the
er, and that he will be held responsible to the pledgor for the
)lus remaining after the satisfaction of the debt secured thereby
Iton V. Wwring, 3 Wis. H., 492). But the Supreme Court of
higan has lately held that a pledgee of choses in action, pledged
ollateral security, who has entered into no obligation to collect
n, is want of diligence; but that he
not chargeable with a
sums collected by him through any
be held accountable for all
icy employed therefor (Bice v. Benedict, 19 Mich. B., 132).
he Superior Court of the city of New York has decided that a
liter receiving from his debtor, as collateral security, a promis-
note made by a third person, past due, with the request to
3Ct it, and apply the proceeds to the payment of the debt,
igh without any express direction to sue upon it, incurs the
gation to use diligence in its collection, and to sue if necessary,
uch case, the debtor stands in the relation of guarantor for the
sction of the note, and is entitled to the exercise, on the part
he holder, of such diligence as is required of a bailee for hire
f a pledgee. It was said that the degree of diligence required
t be determined from the facts and circumstances of the case as
lestion of law. And in the case before the courtj it appeared
the creditors received such a note as collateral security at a
!when the makers were abundantly able to pay it and on ;
p demanding payment, the latter intimated that they had a

nse but the creditors neither notified the debtor thereof nor
;
ight suit on the note until three months thereafter, and mean-
e the makers had become insolvent, whereby the amount of

lote was
lost. The court held, under these circumstances, that
negligence was imputable to the pledgees, and that they were
e to the pledgor for the amount of the note, and could not
ver from him their costs of obtaining judgment against the
612 LAW OF PLEDGES.
makers ( Wakenum v. Orady, 10 Bosw. H., 208 ; cmd vide Foots

Y. Brown, 2 McLecm^s E., 369).
If the pledgee sells the pledge fairly and pubHcly, and in the
manner prescribed by law, he is not answerable for the loss from
its selling for less than its estimated value. But an improper sale
by the pledgee, whereby the pledge brings less than it should, is a

conversion, for which the pledgor may have damages. And if '
the sale was improperly made, it is immaterial in law that the

pledgor presently bought them from the purchaser at about the
same price for which the pledgee sold them. This was so held by
the Supreme Court of the State of Wisconsin, in a case involving
the question {Ainsworth v. Bowen, 9 Wis. R., 348). The defend-
ant, who, as a bailee, had received certain money to be held as
security for the payment of a debt, was held to be under no obliga-
tion to return it until demand made, or, at the least, until notice
that the debt, as security for which he held the pledge, had been
paid by the plaintiff {J)ema/rt v. Masser, 40 Perm. B., 302).
Where the pledgee has not expressly agreed to sell the pledge
when the debt becomes due which it was made to secure, he
is not bound to sell the same at that time. And in such a case,
the pledgee is not responsible for a depreciation in value of the
pledge, occurring "between the maturity of the debt which the
pledge was given to secure and the sale ; that is, if he used the
diligence of a careful man in charge of his own property. This
is the doctrine settled by the Supreme Court of Iowa {Robmson
V. Mcmjley, 11 Iowa R., 410). A pledgee of stocks mingled
them with others of the same kind, owned by himself, so that
they could not be distinguished, and then, after giving notice to
the pledgor, sold a number of shares equal to the number pledged.

The Supreme Court of Mississippi held that, under these circum-
stances, the pledgee was only bound to charge himself with the
price received at this sale, and not with a higher price at which
the same stock was afterward sold {Berlin v. Eddy, 33 Miss. R.,
426). Under the statute of Minnesota it has been held that one
who has taken security for a debt, as therein provided, may bring
his action on the original claim, in the first instance, holding him-
selfready to prove that in fact he had no security, and will not-
be put to a useless expense and delay simply for the purpose of
demonstrating this by a judicial decision ; but by their admission
of the assignment to them of such security, it was held that they
'
LIABILITY OF PLEDGBE. 613
t themselves out of court, until they either show that it was

hausted before bringing suit or that it was valueless {Schalck v.
wmm, 6 Minn. B., 265).

The Court of Appeals of the State of New York have held
it where a pledgee sells the pledge without giving the requisite
tice, he is guilty of a conversion of the property pledged, and

it the proper rule of damages, in an action brought by the
idgor against the pledgee for such conversion, is the highest
ice between the time of the conversion and the
of the property
al {Marhham v. Jcmdon, 41 JN. Y. H., 235).
The late Court of Chancery of the State of New York held

it if a demand when pledged as
against a ttird person be good
[lateral and the amount be lost through the subsequent
security,
iolvency of such third person and the neglect of the creditor, the
iditor is chargeable wit^h the amount (JBarrow v. Bhinlender,
Tohm. Oh. B., 614).
It is held that a person may relinquish a collateral security
ren to him by his debtor, without the consent of the other credi-
•B of the debtor, and not thereby lose his resort against the
bier's property, though he might be liable to the debtor if the
nu-ity was lost by his negligence. And although such creditor
also a nominal trustee for the creditors of the debtor, it is held
it that would not affect his claim against the trust estate, if he
B not violated his duty as trustee. Nor, if afterward such
iditor take the bbnd of the original debtor, and another bond
two others as collateral security for his advances, and then
ease the latter, but with a stipulation that it should not affect
3 liability of the original obligor ,- is his claim against the trust
ad affected. But it was held in the case to be clear that,
lere money is advanced after the sale of the goods pledged,
the
5 claim of the advancing creditor is not affected by having
rted with the goods. So held by the Supreme Court of Penn-
vania {In the matter of Dyett, 2 Watts c& Serg. B., 463).
A. bank made a loan, and took a pledge of the borrower's shares
its stock, as collateral security, with a power of sale if pay-
int should not be made according to the terms of the loan,
terthe borrower's death, the bank sold the shares by auction,
non-payment, became the purchaser, gave credit for the amount
the sale, and claimed the balance of the borrower's administra-
,
who refused to sanction the proceeding. The Supreme Judi-
614 LAW OF PLBDQE8.
cial Court of Massachusetts held, in such a case, that nothing
passed to the bank by this form of sale, but that it still held the
shares under its original title as collateral security {Middlesex
Bamk v. Mvnot, 4 Met. R., 325).
A similar doctrine to this last has been laid down by the
Supreme Court of the State of Iowa. The plaintiff loaned to
the defendant $20,000, for which it gave its acceptances,
payable at its office in the city of New York in 90 and 120
days; and to secure the payment of the sum at maturity",
according to agreement, forwarded to the plaintiff thirty-four
"land-grant construction bonds " of the defendant, of $1,000 each.
The acceptances were protested for non-payment, and remained
unpaid. The plaintiff sent the bonds of the defendant to the city
of New York, with directions to have them sold at the stock
exchange in the city at public outcry to this highest bidder, and

directed a friend to see that the interests of the plaintiff were pro-
tected in the sale.Upon due notice to the defendant, the bonds
were sold and bid in for the plaintiff at the sum of $5,477.86. In
an action on the acceptances to recover the balance due, after,
deducting the amount realized by the sale of the bonds, it was held
had power to sell the bonds to a third person foi
that the plaintiff
the payment of the debt, but that it could not itself become the
purchaser and that the bonds must be considered as still held by
;
the plaintiff, under its original title, as collateral security for the
payment of the money borrowed by the defendant {Baiik of Old

Dominion v. Butyuque, etc., JS. E. Co., 8 ClarMs R., ^1T).
But the Court of Common Pleas of the city of New York has
held that, where property is pledged to a firm, aispecial partnerof
said firm may, if he wishes, at a sale made by the pledgees, become
a purchaser of the property which is pledged {Lewis v. Grahain,
4 AU. Pr. R., 106).
In a case before the old Supreme Court of the State of New
York, hereinbefore referred to upon another point, it appeared
that the defendant gave his note to the plaintiff at four months for
a precedent debt, and at the same time delivered to him certain
merchandise as collateral security for the debt, which the plaintiff,
after the note fell due, sold at auction for less than its value, with-
out notice to the defendant, and without calling upon him to redeem,
and then sued the defendant for the balance of the note. . The
court held that the defendant was entitled to have the full value of
OBLIGATIONS OF THE PLEDGEE. 615
merehandise, and not merely the proceede of the sale applied

the payment of the note. And where, in such case, it appeared
^t the valne of the property was equal to the amount of the
;e, the court held that the defense was admissible under the plea
nonrosmm^psit. Of course, the decision was based upon the

umption that the sale of the pledge was illegal for the want of
! proper notice ; and hence, that the sale was a conversion of the
)perty, rendering the pledgee liable for the full value of the
ae {Stearns v. Marsh, 4 Denid's B., 227).
CHAPTEE XLYII.
rtES AUD OBLIGATIONS OF THE PLEDGEE IN EE8PECT TO THE

PEOPEBTT PLEDGED —
OABE AND DILIGENCE EEQriBED PEE-
BUMPTIONS IN CASE OF THEFT —
MEANING OF OEDINAET CAEE, AS
[INDEESTOOD IN SUCH CASES.
It is often a very important question to determine the duties

d obligations of the pawnee in respect to the property which he
3 received in pledge. That is to say, where the pledge consists
negotiable paper it is important to understand what care and
igence the pledgee is expected to use in securing and collecting
5 same ; and where the pledge consists of goods and chattels, it
equally important to understand what degree of diligence is
posed upon the pawnee in respect to the preservation of the
H^n. Both pawnor and pawnee have an interest in the pawn,
i they are mutually interested in having the subject of the pawn
)perly eared for. But the possession of the property pledged is
the pledgee, and, therefore, a degree of diligence and care must

rionsly be exercised by him in respect to it.
A.ccording to the elementary writers and the judicial authorities,

i pawnee is required to use ordinary diligence in respect to the
wn, and, consequently, he would be liable for ordinary neglect in
ation to it. This is the rule laid down by Bracton, Sir William
nes and Lord Holt ; and this would also seem to be the rule of
i Eoman law, although the point of responsibility is stated in the
iman law to be, where there is deceit and negligence on the part
the pawnee. Dc^m et culpa/m,, etc., ^>ignori acceptwm,- is the
;
616 LAW OF PLEDGES.
language {Dig., lih. 50, tit. 17, I. 23). Sed uli utriwque
uHUtaa vertitur, ut in empto, ui in locato, ut in dote, ut in
pignore, ut'in sooiatate, et dolus et culpa prmstatur, is another
passage from the same Digest (Dig., lib. 13, tit. 6, 1. 5, § 2, Ih.,
tit. 7, 1. 13, 14). Sx igitur, quae diligens paterfamiMas in sida
rebus prcsstwre solet, a cimditore exiguntur, is still another pas
sage from the same great work {Dig., Uh. 13, Ut. 7,1. 14). And
a fourth passage may be quoted : Quia pignus utriusgue gror
tia datur, etc., placuit suffidre, si ad earn- rem custodiendam
exacta/m dnMgentia/m adMbeat {Inst., hb. 3, tit. 15, § 4; Ayliffe,
Pond. B, Ut. 1, p. 531). Judge Story says that the same rule of
ordinary diligence is understood to be adopted in modern times in
the principal countries of continental Europe and in Scotland,

and it has the express sanction of Pothier and other writers of
acknowledged authority {Story on Bailm., § 832, a/nd authorities
cited).
Sir John Holt, who is always quoted with respect, and from
whom no English lawyer Tentures to dissent without extreme dif-
fidence, has taken a comprehensive view of the whole subject of
what is required of the bailee in respect to the property in his
care, in his judgment in a celebrated case which is often cited, and

upon the point under consideration h^ says " As to the fourth :
sort of bailment, viz., vadium,, or a pawn, in this I show two

things first, what property the pawnee has in the pawn or pledge
;
and, secondly, for what neglect he shall render satisfaction. As

to the first, he has a special property for the pawn is a secimng ;
to the pawnee that he shall be repaid his debt, and to compel the
pawnor to pay him. But if the pawn be such as it will be the
worse for using, the pawnee cannot use it, as clothes, etc. but if ;
it be such as will be never the worse, as if jewels for the purpose
were pawned to a lady, she might use them. But then she must
do it at her peril for, whereas, if she keeps them locked up in her
;
cabinet, if her cabinet should be broke open and the jewels taken
from thence, she would be excused if she wears them abroad, and;
is there robbed of them, she will be answerable. And the reason

is, because the pawn is in the nature of a deposit, and, as such, is
not liable to be used. And to this efiect is Ow., 123. But if the
pawn be of such a nature as the pawnee is at any charge about

the thing pawned, to maintain it, as a horse, cow, etc., then the
pawnee may use the horse in a reasonable manner, or milk the
OBUQATIONS OF THE PLSBQEE. 617
, etc., in recompense for the event. As to the second point,

cton, 99, b, gives you the answer Creditor, qvn,;pignus aooepit,
:
Uigatur, et ad illam restituendamn, tenetwr ; et cum hujusmodi

in pignus data sit utrvusque gratia, quo
soilicet debitorig,
lis ei fecunia crederetwr, et creditoris quo magis ei in tuto

oreditum, sufficit ad ejus rei cusiodia/m diUgenUa/m exaetam,,
Sbere, qua/m si praestierif, et rem casu a/ndserit, seourus esse
sit, nee impediehi/r creditum petere. In effect, if a creditor
es a pawn, he is bound to restore it upon the payment of the
t but yet it is
; sufficient if the pawnee use true diligence, and
svill be indemnified in so doing and notwithstanding
; the loss,
he shall resort to the pawnor for his debt. Agreeable to this
J9 Ass., 28, and Southcote's case. But, indeed, the reason
en in Southcote's case is, because the pawnee has a special pro
ty in the pawn. But that is not the reason of the case ; and
re is another reason given for it in the Book of Assize, which
ndeed the true reason of all these cases, that the law requires
hing extraordinary of the pawnee ; but only that he shall use
ordinary care for restoring the goods. But, indeed, if the
Qey, for which the goods were pawned, be tendered to the
race before they are lost, then the pawnee shall be answerable
them because the pawnee, by detaining them after the tender
;
the money, is a wrong-doerj and it is a wrongful detainer of the
ids, and the special property of the pawnee is determined,
da man that keeps goods by wrong must be answerable for

m at all events ; for the detaining of them by him is the reason
the loss. Upon the same difference, as the law is in relation to
ras, it will be found to stand in relation to goods found " {Coggs
Berna/rd, 2 Id. Ban/m. B., 909, 915 et seq.).
Tpon this point Sir William Jones observes :

" As to the
;ree which the law requires from a paminee, I find
of diligence
self again obliged to dissent from Sir Edward Coke, with whose
nion a similar liberty has before been taken in regard to a deposi-
y; for that very learned man lays it down, that 'if goods be
ivered to one as a gage or pledge, and they be stolen, he shall
discharged, because Ae hath a property in them and, therefore, ;
ought to keep them no otherwise than his own (1 Inst.j 89, a '
•
iep., 83 b). I deny the first proposition, the reason and the
elusion. Since the bailment, which is the subject of the pre.
fc article, is beneficial to the pawnee by securing the payment
78
618 LAW OF PLEDOEH.
of his debt, and to th.e pawnor by procuring him credit, the rule
which natural reason prescribes, and which the wisdom of nations
lias confirmed, makes it requisite for the person to 'whom the
gage or pledge is bailed to take ordinary care of it ; and he must

<;()nsequently be responsible for ordinary neglect. This is
expressly holden by Bracton {Bract., 99) and when I rely on ;
his authority, I am perfectly aware that be copied JusUniam,

.aliriost word for word; and that Lord Holt, who makes considerar
ble use of his treatise, observes, three or four times, '

that he was
an old author ;' but although he had been a civilian, yet he was
also a great common lawyer, and never, I believe, adopted the
rules and expressions of the Homans, except when they coincided
with the laws of Miglamd in his time ; he is certainly the best of
our juridical and as to our ancient authors, if their doe-
classics ;
trine be not law, must be left to mere historians and antiquari-

it
ans but if it remains unimpeached by any later decision it is not only

;
equally binding with the most recent law, but has the advantage
of being matured and approved by the collected sagacity and
experience of ages" {Jones on JBadhh., 86, 87). This doctrine
will be found to be the recognized rule at the present day, as
illustrated by the cases, a few of which may be referred to.
When the pledgee of a note, after obtaining a judgment upon

it, and taking out a fieri facias, which was returned unsatisfied,
omits to sue out a capias ad satHsfaciendv/m, against the debtor,

the Supreme Court of Louisiana held that he will not, in the
absence of any proof of injury from such omission, or of any
request by the pledgor to take out the latter process, be considered
as having thereby rendered himself responsible for the amount of
the note.
It was also decided, in the same case, that where it becomes
necessary for a pledgee, in the exercise of the diligence required
of him, to employ an agent, on account of his particular profes-
sion and skill, he will not be responsible for the neglect or mis-
conduct of the latter, where reasonable care was shown in the
choice of the agent, as to his skill and ability {Succession of JBUlegs-

hurg, 1 Za. An. R., 340). This is undoubtedly a correct rule as
to the liability of the pledgee for the acts of the agent or attorney
he may employ in respect to the pledge, and it is very important
to the safety of the pledgee.
The general rule is declared to be, by the Supreme Court of
OBLIGATIONS OF THE PLEDGES. 619
eorgia, that where a party receives a note as collateral security

r a debt, withoutany special agreement, the party receiving
eh note must use ordinary care and diligence in collecting it;,
id if any loss should happen to the other party by reason of a
ant of such care and diligence, the law will compel him to make
)od the loss ; but if there is any special agreement between the
irties, then they will be bound by such special agreement, and
)t by the general rule {Lee v. Baldwin, 10 Geo. E., 208).
In an early case before the present Supreme Court of the State
'
New York, the fects were these : One Wilbur, being indebted
the Blngston Bank, borrowed of the plaintiffs their notes,
hich he left with the bank as collateral security for his indebted-
!ss, with notice to the bank that they were mere accommodation
)tes. He also left with the bank, as collateral security for the
me one Swift, which was business paper. Sub-
debt, a note of
bank discounted the Swift note for Wilbur, and
quently the
)plied the avails toward Wilbur's debt. The Swift note not
iiBg paid when due, it was sued by the bank, and an arrange-
ent was made between the bank and the parties to that note,
hereby the note was .discharged, and a bond taken in its place,
he bond Was conditioned for the payment of a sum certain, at a
ture day, but was given with a secret agreement that it should
i satisfied if the bank should recover of the plaintiffs the debt
ring by Wilbur. The bank did so recover of them then, on
;
IB plaintiffs' requisition, assigned to them the claim against Swift,

hat claim was unavailable to the plaintiffs, because the note of
ffift had been discharged by taking the bond, and the bond was
scharged by the subsequent act of the bank. The plaintiffs,
iving paid their notes in ignorance of the arrangement as to the

svift note, "brought their suit to recover of the bank the amount
Te on the last mentioned note. The court held, 1st. That the
ink held the claim of the Swift note primarily for their own
curity,and next for the indemnity of the plaintiffs ; and that
16 bank had no right so to deal with it as to impair that indemnity.
i. That having impaired the indemnity to which the plaintiffs
ere entitled, by so treating the Swtft claim as to make it entirely
lavailable to all parties, the bank was bound to account to the
aintiffs for the amount of that claim {Chester v. The Kingston
'mlc, 17 Barb. B., 271).
This case would seem to have been decided correctly, beyond
620 L-A.W OF PLED ass.
reasonable doubt, but it was nevertheless taken to the court of

and there very ably argued, and the judgment of the
last resort,
Supreme Court unanimously affirmed. The doctrine of the case,

as decided in the Court of Appeals, appears to be, that where a
creditor makes an agreement by which a security is rendered
yalueless to a surety who is entitled to be subrogated in respect
thereto, the surety who has paid the creditor, after a judgment
obtained against him in ignorance of such agreement, is entitled
amount of the defeated security
to recover from the creditor the
{Ghestev v. The Kingston Bamk, 16 N. Y. B., 336).
The Supreme Court of the State of Alabama has declared the
following doctrine : If a debtor deposits with his creditor, uncon-
ditionally, notes against a third person as collateral security, the
latter thereby acquires the control and direction of their collection^
and it becomes his duty to take all necessary measures to prevent
the discharge of any of the parties thereto, and in such case notice
to bring suit on them should be given to him. And if the credi-
tor receives the notes under a special agreement, by which he is
not to sue, but to collect in any other mode, he must, as to all
persons without notice of the extent of his powers, be regarded

as the general holder, and notice to sue may be given to him
{Pickens Yarborough, 26 Ala. R., 417). And the same court
v.
held in another case that, under such circumstances, the pledgee

is bound to the use of due diligence in the collection of a note so
taken, and is responsible to his debtor for any damages caused by
his laches ; but if the note is on an insolvent person, its retention
for never so long a time wUl not authorize the inference of pay-
ment of the original debt {Powell v. Hemry, 27 Ala. R., 612).
The Supreme Court of California has laid down the rule that a
pledge is a bailment which is reciprocally beneficial to both par-
ties, and therefore the law requires of the pledgee the exercise of
ordinary diligence in the custody and care of the goods pledged,
and he is responsible' for ordinary care. And it appeared in the
case before the court that the bailors agreed that the goods should
be stored in a certain warehouse at their risk and expense it was ;
held that their removal, by an agent of the bailees, though with-

out their knowledge, made them liable for the safe keeping of the
goods after their removal {St. Loshy v. Damidson, 6 Cal. R., 643).
The Supreme Coiirt of Illinois recently made a decision which
incidentally involved this point. It was held that a pledgee of
;
0BIAGATI0N8 OF TBE PLEDGEE. 621
stock is not bound to sell the pledge on a default, nor is he liable

because it afterward depreciates; that the power to sell is his
privilege only; to protect himself against a depreciation the

pledgor should redeem (Rozel v. MoOlellcm, 48 III. B., 345).
And the Supreme Court of Pennsylvania has held that where a
creditor holds a chose in action as collateral security for the pay-
ment of his debt, he is not bound to pursue its coUeotion ; and if
lost, that it is the loss of the debtor {Smouse v. Bail, 1 Oranfs

Oases, 397).
The Supreme Court of Georgia holds that a creditor receiving a

from his debtor and suing it in his own
note as collateral security
name does not therefore become surety for the maker, but is
only bound to use due diligence in the collection {fJardm v. Jones,
23 Qeo. R., 175). But the Supreme Court of Tennessee has very
properly decided that a creditor who takes from his debtor an
assignment of claims in favor of his debtor against third parties as
collateral security payment of the
for his debt, to be applied to the
same, is liable for any of those claims that are lost by reason of his
Eegligence (Wa/rd v. Morgam, 5 SneecPs R., 79).
The Supreme Court of Maine has recently decided that a bank is
bound to take ordinary care only of United States bonds, which
are pledged by the owner as collateral security for the payment of
a note discounted by the bank {Jenkins v. The National Village
Bank of Bowdovnham, 10 Am. Law Reg., N. 8., 598 S. C, 58 ;
Maine R., 275).

The Supreme Court of Pennsylvania has decided that where a
creditor, holding collateral seciirity as a consideration for extension
of time, accepts additional collaterals, which he agrees to prosecute
to collection or insolvency, and to apply the proceeds as fast as col-
lected to the extinguishment of the original debt, and to surrender
and give up the same amount of the original collateral bonds, it is
the duty of the debtor to demand the surrender of the bonds
and that without a demand on the creditor or the offering him an
opportunity to surrender the bonds, he is not liable to the debtor
for any depreciation of the bonds during the time they remained
m his possession after they might have been demanded ( WilUam-
son V. McOlure, 37 Penn. R., 402).
If a pawnee or other person having charge of the property of
another so confoupds it with his ovm that it cannot be distin-
guished, he must bear all the inconvenience of the confusion. If
622 i-AW oy PLBDass.
he cannot distinguish and separate his own, he will lose it. And
if damages are given to- the plaintiff for the loss of his property,
the utmost value will be taken [Runt v. Ten Eych, 2 Johns. Gh.
R., 62 Same ^prinovple, Brnggold v. Ringgold, 1 Hm,. de Gill's
;
R., 11).
Story lays jiown the rule in general terms that, in every case
where the pledge has suffered any injury by the default of the
pledgee, the owner is entitled to a recompense in proportion to the
damages sustained by him. But, he adds, in estimating the damages,
no compensation is to be made for any injury which has arisen by
accident or from the natural decay of the pledge {Story on Bailm.,
§ 351).
It is the duty of the pawnee, as before stated, to return the
pledge and its increments, if any, after the debt or other duty has
been discharged (Isaack v. Clarke, 2 Bulst. R., 306). But this
duty by the common law extinguished when the pledge is lost
is
by casualty or other unavoidable accident, or where it perishes

through its own intrinsic defect, without the default of the pawnee.
This doctrine was clearly stated by Lord Holt in the celebrated
case before referred to {Coggs v. Berna/rdi, 2 Ld. Raym. R., 909).
The same where the pawn is lost by robbery or by
rule applies
superior force, or even by theft, if the pawnee has exercised reason-
able diligence. This was also Lord Holt's view of the law, and the
doctrine seems to be fully established. Sir William Jones, how-
ever, maintained that private theft is presumptive evidence of
negligence, and that in case the pledge proves to have been stolen
and the circumstances of the larceny are not shown to exculpate
the pawnee from blame, he will be responsible for the loss. But
in this he is probably in error. The true principle, supported by
the authorities, seems to be that theft, p&rse, establishes neither
responsibility nor the reverse in the bailee. If the theft is occa^
sioned by any negligence, the bailee is responsible ; if without any

negligence, he is discharged. Ordinary diligence is not disproved,
even presumptively, by mere theft; but the proper conclusion
must be drawn from weighing all the circumstances of the particu.
lar case {Story on Bailm., § 338). And this is the doctrine laid
down by the learned commentator. Chancellor Kent, in his world-
renowned Commentaries upon American Law (2 KenCs Com., ^
A:Q,pp. 580, 581, 4:th ed.). Sir "William Jones, on the authority of
Mr. Justice Cottesmore, says :
" Now, it has been proved that ' a
:
OBLIGATIONS OF THE PLEDGEE. 623
lee cannot be considered as using ordinary diligence who suf-

;'
i the goods bailed to be taken by stealth out of his custody
I it follows that pawnee shall not be discharged if the pawn

' a
simply stolen from him ;' but if he be forcibly robbed, of it without
fault, his debt shall not be extinguished " {Jones on Bailin.,
. But the rule, as at present recognized, is, as before stated, in
pact to the fact of theft being presumptive of neither negligence
'
the reverse.
\\x William Jones very properly advances the doctrine ;
" If,
eed, the thing pledged be taken ojpenly and 'violently through
fa/ult of the pledgee, he shall be responsible for it ; and after
',nder and refusal of the money owed, which are equivalent to
ual payment, the whole proj>6rty is instantln/ revested in the
dgor, and he may, consequently, maintain an action of trover.
is said, in a most useful work, that by such tender and refusal
thing pawned ' ceases to be a pledge, and becomes a deposit.' But
5 must be an error of impression, for there can never be a deposit
;hout the owner's consent, and a depositary would be eharge-
6 only for gross negligence ; whereas the pawnee, whose special
»perty is determined by the wrongful detainer, becomes liable,
cdlpossiMe events, to make good the thing lost, or to relinquish
Aeht" {Jones on Bailm., 91, 92). The learned author refers
Buller's ISTisi Prius, which declares that in the case suggested the
idge " becomes a deposit."
But in the subsequent or later editions
that work, the words, " and becomes a deposit," are omitted.
[t may not be amiss to state, in tliis connection, that jurists have
tinguished care or neglect by three different degrees, namely,

m, ordinary and and the law on this head, which pre-
sli^ght /
ledin the ancient Roman

empire, and still prevails in most
ilized countries, constituting, as it were, a part of the law of
tions, is substantially as follows
Gross neglect, lata culpa, or, as the Roman lawyers most accu-
iely call it, dolo proxima, is, in practice, considered as equivalent
dolus, or fraud itself; and consists, according to the best inter-
sters, in the omission of that care which even inattentive and
mghUess men never fail to take of their own property. This
lit they justly hold a violation of good faith.
Ordinary neglect, levis culpa, is the want of that diligence
lich the generality of mankind use in their own concerns ; that
of ordi/aa/ry care.
;
624 LAW OF PLEDGES.
Slight neglect, levissima culpa, is the ormssion of that care

which very attentive and vigilant persons take ofihei/rown goods •
or, in other words, of very exact diligence.

In contracts redproaally beneficial to loth parties, as of those of
sale, hiring, pledging, partnership, and the contract implied in
joint-property, such care is exacted as every prud&nt man com-
monly takes of his own goods by consequence, the vendee, the
; and,
hirer, the taker in pledge, the partner and the co-proprietor, are
answerable for ordimary neglect {Jories on Bailm,., 24, 26).

These principles were recognized in an early case before the
• English courts, which was an action on a bond to account for money
which hfid come to the defendant's hands as agent. The defend
ant pleaded that he locked up the money in his master's warehouse
and it was stolen from thence (not saying without default on his
part). And it was adjudged that it was a good bar to the action,
and a sufficient accounting within the condition of the bond ( Yere
V. Smith, 1 Ventr. R., 121).And a case is mentioned in Fitzhar-
ris's Abridgment, where goods were locked in a chest and left
with the bailee and the owner kept the key, and the goods were
stolen the bailee was held to be discharged {Fitzh. Ahr., %th ed.,
;
tit. Det. 59, amd Viner's Ahr., fit. Pawn).

And in a more recent English Court of King's Bench,
case, in the
Lord Kenyon held that a bailee of goods kept for hire was not
liable for a theft committed by his servants, though there were
some prior suspicious circumstances impeaching their fidehty. His
lordship said :
" To support an action of this nature, positive neg-
ligence must be proved. It has appeared in evidence that the
goods were lodged in a place of security, and where things of
much greater value were kept. This is all that is incumbent on
the defendant to do and if such goods are stolen by the defend-
;
ant's own servants, that is not a species of negligence of a descrip-

tion to support this action, inasmuch .as he has taken as much care
of them as of his own " {Finucane v. SmaU, 1 -Esp. N. P. B.,
315).
The reason of this rule is stated by Lord Holt to be that " the
law requires nothing extraordinary of the bailee, but only that he
shall use ordinary care in storing of the goods." Therefore, in
each case of this nature the inquiry really, is, has the defendant
used such ordinary care ? And it is incumbent on the plaintiff,
before he can recover, to support his declaration by proper proofs

;
OBLIGATIONS OF THE PLEDGHE. 625
it may be added that the onus proiandi as to negligence will

in him ( Vide
Deem v. Keate, 3 Camp. Jf. P. Oases, 4 ; Cooper
3wrton, Ih. 5 ; Ma/rsh v. Howe, 8 Bow. c& Ey. B., 223 Ha/r- ;
V. Paekwood, 3 Tcmnt. B., 264).

>ut there are authorities upon the point in. the American
)ortg. The Supreme Court of Alabama has recently laid down
rule that if a pledge is stolen, the pledgee is not absolutely
le nor absolutely excusable. is occasioned by his
If the theft
ligence, he is responsible.any negligence, he is
If without
ihaiiged, being bound for ordinary care and answerable for ordi-
^ neglect {Petty v. Ovemall, 42 Ala. B., 145).
!he Supreme Judicial Court of Massachusetts has held that a
ositary for hire or reward is answerable only for ordinary
leet. If he uses due care, and the property deposited is never-

less stolen, he is excused {Foster v. Essex BwnTc, 17 Mass. B.,
). And substantially the same doctrine was laid down in a

i some time since decided by the Supreme Court of Indiana
lapp V. Grayson, 2 Blackf. B., 130).
'heSupreme Court of Alabama, in a much earlier case than that
Patty Y. Overall, held that warehousemen not chargeable with
ligence are not answerable for goods intrusted to them in ease
robbery, or where embezzled by their storekeeper or servant
that the onus of showing negligence is on the owner {Moran
Uayor, of Motile, 1 Stew. B., 284). And precisely the
etc.,
e doctrine was laid down by the old Supreme Court of the

;e of New York. Sutherland, J., who gave the opinion of
court in the case, said " It appears to be well settled that a
:
•ehouseman or depositary of goods for hire is responsible only

ordinary care, and is not liable for loss arising from accident
in he is not in default. * * * In Finvsam v. SmaU (1
. N. P. B. 315), it was held that if goods be bailed to be kept for
i, if the compensation be for houseôom, and not a reward for
and diligence, the bailee is only bound to take the same care
18 goods as of his own and ; if they be stolen or embezzled by his
atit, without gross negligence on his part, he is not liable ; and
onus of showing negligence seems to be upon the plaintiff,
!ss there is a total default in delivering or accounting for the
is " {Sohnddt v. Blood, 9 Wend. B., 268, 271). And in a much
ier case, the same court held that one who receives goods for
ird into his store, though standing upon a wharf, the goods tc
79
626 LAW OP VLEDOES.
remain there for the purpose of being forwarded, subject to the

bailor's order, is liable merely as a warehouseman, and that he is
bound no more than ordinary care in preserving the
to exercise
goods. And was further held that public storekeepers receiving
it
and storing goods for hire are not liable to the same extent as com-
mon carriers, nor are they bound to take better care of the goods
than a prudent man would ordinarily take of his own property.
And it was declared that where goods so received are, of them-
selves, well secured, the mere circumstance of receiving goods of
another sort into the same store, which invite thieves into the
store, who set it on fire and consume the former goods, will not
make the bailee liable, unless the receipt of the latter goods will
probably produce such a consequence {Piatt v. Hihbard, 7 Cow.
B., 497 ; and vide Foote v. Storrs, 2 JSaa'h. E., 326 ; Harrington
V. Snyder, 3 i5., These are cases arising under another spe-
380).
cies of bailment than that of a pledge, but the same rule would
seem to apply so far as the care and diligence of the bailee are
concerned.
Upon this point Mr. Justice Story remarks " By our law, a
:
bailee is in many cases excusable where the loss is by theft but ;
never where that theft is occasioned by gross negligence. So

long ago as the reign of Edward III {Year Booh, 29, Liler
Assisarum, 28), it was held that if a person bail his goods to keep,
and they are stolen, the bailee is excused. The reasoning of the
court in Coggs v. Bernard (2 Ld. Raym., 909) shows that the
coiirt did not consider theft as ^prvma fade presumptive of negh-
gence. In short, our law considers theft, like any other loss, to
depend, for its validity as a defense, upon the particular circum-

stances of the case, and to be governed by the general nature of
i
the bailment, and the responsibility attached thereto. It raises no

presumption either way from the mere fact of theft. It neither
imputes the theft to the neglect of the party, nor, on the other hand,
exempts him from responsibility from that fact alone. But it
decides upon all the circumstances of the case, and thence arrives
at the conclusion that there has or there has not been a due degree
of care used " (Story on BoaM,., § 39). And in a note in another
part of his work he says " It may, perhaps, after all, admit of
:
doubt whether, as a general rule, theft was \ieemed even in the
civil law as necessarily per se importing negligence, or presump-

tion of negligence. The text of the Digest relied pn by Sir Wil-
OBLIGATIONS OF THE FLBDGEE. 627
[iam Jones to establish it is that which makes a partner liable for
a. loss by theft of a flock of sheep left with him ]by his partner to
depasture. * * * Now, in the ease of a flock of sheep, it may
be that there could scarcely be a loss by theft without some negli-
gence, or even without gross negligence, where in other cases theft

might be without any the slightest negligence. * * * There '
are many cases where theft may be committed, against which no

reasonable diligence could guard the bailee. * * * Besides,
in many cases, where the thing bailed is valued, the Eoman law
presumed that the party took upon himself extraordinary risks"
[Story on Baibn., § 334, note 2).
Lord Holt says, in the case heretofore referred to: "If the
bailee puts the horse lent into his stable and he is stolen from
thence, the bailee is not answerable ; but if he leaves the stable

doors open, and thieves steal the horse, he is chargeable, because
the neglect gave the thieves occasion to steal the horse" {Coggs v.
Bemwrd, 2" Id. Baym. B., 909, 912). These remarks of his
lordship were made in respect to a gratuitous loan of the article
stolen, but they are quite pertinent to the point in hand, and have
been recognized as sound in cases of pledge ( Vide Clarfse v. ^(wn-
shaw, 1 Govj'a B., 30).
CHAPTEE XLYIII.
DUTIES AND OBLIGATIONS OF THE PLEDGEE UPON THE TERMINATION OF

THE PLEDGE —
LIABILITY UPON REFUSAL OR NEGLECT TO RESTORE
THE PLEDGE —
PRINCIPLES GOVERNING THE QUESTION OF THE
It hae been before remarked that the pledgee is bound to return

the pledge and its increase, if any, after the debt or other duty
has been discharged. If the pledge has been lost or destroyed
through any of the various ways which will excuse the pledgee
from restoring the pawn, this duty is extinguished. And the
Roman law, which is followed by Pothier, required the pawnee,
on the debt or duty being discharged for which the pawn was
held, to make due proof of the accident or other matter which
caused the loss, when that was claimed as a reason for failing to
;
628 LAW OF PLEDGES.
make restitution of the pledge, and, f urthei', that he was unable to

prevent it.
Mr. Jnstiee StOi^ says that the common law does not differ from
the Roman law in this respect, where a suit is brought for the
restitution of the pawn after a due demand and refusal. In such
a case, the demand and refusal would ordinarily be evidence of a
tortious conversion of the pawn and it would then be incumbeht
;
on the pawnee to give some evidence of a loss or casualty, or by

superior foirce, independent of his own statement, unless, indeed,
upon the demand and refusal, he should state the circumstances of
the loss and then the whole statement must be taken together,
;
and submitted to the jury, who would, under all the circumstances,
decide whether it was a satisfactory account or not. But, if a
suit should be brought against the pawnee for a negligent loss of
the pawh, then it would be incumbent upon the plaintiff to sup-
port the allegations of his jdeelaration by proper proofs, and the
onus probandi, in respect to negligence, would be thrown on him.
In sttch an action foi: a negligent loss, brought against the bailee,
it seems that his acts and remarks, cotemporaneous with the loss,
are adniissible tevidende in his favor, to establish the nature of the

loss. These positions of the learned author are fortified by refer-
ence to elementary writers and judicial authorities, both American

and English, and they are doubtless correct {Story on Bailm.,
§339).
In an action against a bailee without hire, brought before the
old Supreme Court of the State of New York, the court held
that, in such a case, the bailee was liable for gross negleet only
but declared, nevertheless, that on dema/nd, he refuses or ormts
if,
to deliver the article received, he is answerable, unless he can

show its loss without fault or negligence on his part. The article
delivered in this case to the bailee was a sealed letter containing
a $100 bank bill and it is possible that the rule was held a httle
;
more stringently against the bailee, or rather that presumptions

were indulged in a little more freely, than though the subject of
the bailment had been of a different nature. The iTile, however,
can be very correctly applied to the case of a pledge. The pre-
sumptions, on demand and refusal, or neglect, perhaps might be
the same in both cases {Beardslee v. Richardson, 11 Wend. R., 25).
In an action brought in the Supreme Court of Pennsylvania
against a mandatory for loss of property bailed to him, it was held
;
OBLIGAVlONa OF THE PLEDGEE. 629
lat his eonGomitant acts and declarations, immediately before and

ter the loss, are admissible in evidence to disprove his negli-
snce, but otherwise of his own testimony {Tomphins v. Salt-
msh, 14 S&rg. <& Rawlis B., 2Y5). If the party who pledged
16 goods was not the owner of them, the pawnee may defend
mself by showing that he has delivered over the goods to the

lal owner, unless the pawnee has a special property, which he is
ititled, imder the circumstances, to assert against the owner. The
saeral rale in such cases, subject, however, to some exceptions, is
lat of the Eoman law : Nemo phis jv/ris ad aUimi 1/ransferre

)te3t, qua/m ifpse hdb&ret. The exceptions are founded upon the
iblie policy of protecting hona fide purchasers, under peculiar
roumstances. pawnee held the pledge, merely as a pledge,
If the
cm the owner, the second pawnee may discharge himself from
ly obligation to the owner by delivering it up to his own pledgor
;any time before an oflfer to redeem by the owner.

The pawnee makes himself responsible for all losses and acci-
jntB, whenever he has done any act inconsistent with his duty,
' has refused to perform his duty. If, therefore, the pawnor
lakes a tender of the whole of the debt for which the pawn is
iven, and the pawnee refuses to receive' it, or to redeliver the
ledge, the special property which he has in it is determined, and
3 is henceforth treated as a wrong-doer, and the pawn is at his

lie risk. The same rule applies to all cases of a misuser or con-
jrsion of the pawn by the pawnee. The rule, however, must be
aderstood with the same qualifications as in other cases, that the
me loss or accident would not otherwise have inevitably hap-
jned for if it would and must have happened at all events,
;
len, perhaps, he might not be liable for the loss. These state-
lents are taken from Mr. Justice Story's work on Bailments, but
i&y were extracted largely by him from the work of Pothier, the
ninent French jurist and author, interspersed with an occasional

iference to an Americap or English case pertinent to the subject
id the clearness and general accuracy of the statements would
!em to supersede the necessity of any attempt at improvement,

id will justify their insertion here {Story on Bwilm.,
§§ 34:0, 341).
Connected with this question of negligence in respect to the
êdge, Sir WiUiam Jones mentions a provision contained in the
icient laws of the "Wisigoths, and in the capitularies of Gharle-
lagne and Louis the Pious, by which a depositary of gold, silver
'
630 I'AW OF PLED&m.
or valuable trinkets is made chargeable, if they are destroyed by

fire, and his own goods perish not with them ; a circumstance which
some other legislators have considered as conclusive evidence of
gross neglect or fraud. He also mentions a provision in the north-
ern code which he had not seen in that of any other nation,
namely, that if precious things were deposited and stolen, time
was given to search for the thief; and if he could not be found
within the time limited, a moiety of the value was to be paid by
the depositary to the owner, ut dam/nwm ex medio uterque susti-
nent {Jones on Bail/m., 118).
It hag been held by the Court of King's Bench of England that
pawnees are not liable for loss or damage by fire, without proof
of negligence and the same doctrine, doubtless, would be recog-
;
nized in this country, where no statute exists estabhshing a con-

•
trary rule {Peers v. Sampson, 4 Dowl. & By. B., 636).'

Some cases from the American Reports, bearing upon the lia-
bilities of pledgees, may be referred to as giving light upon the
subject. A late case before the Supreme Court of Connecticut

exhibits the view which courts are apt to take upon these ques-
tions. A bank held certain stocks as collateral security for the
• plaintiff's indebtedness, with the right to sell them if the indebt-
edness was not paid within a reasonable time, but with no arrange-
ment as to the time, place or manner of sale. Some months after,
the bank, without previous notice to the plaintiff, made a condi-

tional sale of the stocks, which was to take effect if the plaintiff
did not, on that day, pay or satisfactorily secure his indebtedness,

and gave notice, that unless his indebtedness was paid or satisfac-
torily secured on that day, the stocks would be sold. The plaintiff
remonstrated, and asked to be allowed one day more for the pur-
pose, and, in fact, the nextday procured the means of paying the
greater part of the debt, but the bank closed the sale on that day.
The court held that the conduct of the bank was unreasonable and
wrongful, and that it was liable to the plaintiff in damages {Ste-
vens V. HurlbutBank, 31 Cown,. B., 146).
The Supreme Court of Ohio has held in a recent case that, where
a party receives a note as collateral security for an existing debt,
without any special agreement, he is bound to use ordinary dili-
gence in collecting it, and is responsible for any loss which may hap-
pen to the other party by reason of a want of such diligence. But
where a debtor assigns to his creditor as collateral security anego-
.
OBLIGATIONS OF THE PLEDGEE. 63].
tiablepromissory note of a third party, before maturity, and by

the terms of the assignment waives demand and
notice of non-pay-
ment, such creditor, acting in good faith, is not bound to demand or
insist upon payment of the security before its maturity, though he
may show payment would be made, if insisted

at the trial that
on [Bdberts v. Thompson, 14 Ohio B. JV. S., 1)

The Supreme Court of Alabama has lately held that, where a
party who has transferred a note by indorsment as collateral secu-
rity pays the original debt, the pledgee is bound to redeliver the
note to the pledgor, upon demand and if;he refuse to do so, he
is liable in an action of trover by the pledgee for the conversion

of the same {Overstr'eet v. JVunn's Executors, 36 Ala. B., 649).
While slavery was legalized as an institution in the southern
States, Supreme Court of Mississippi held that the hirer of a
the
slave is not responsible for him if he runs away, unless by the
fault or negligence of the hirer. And it was declared that what

will constitute reasonable diligence and care must depend upon
the circumstances of each case {Perry v. Bea/rdslee, 10 Miss. B.,
568). The rule is the same, so far as this point is involved, in case
of a pledge o'f similar j)roperty.
The Superior Court of the city of New York has decided that,
upon tender of the amount due for which a pledge is held as secu-
rity, the lien of the pledge is destroyed, and the pledgee is bound
to return the same to the pledgor on demand [Haskms v. Kelly, 1,
Rob. B., 160), And in another case it was held by the same court
that pledgees of stock to secure the payment of a promissory note,
given on a loan of money, are wrongful conversion of
liable for a
such stock, if not redelivered on demand and tender, although .
they may be excused by from returning

a stipulation in such note
the identical certificate of stock delivered on such pledge, where
they set up, as the only groand for their refusal to deliver, a
lien for money due by a third person {Hardy v. Peyton, 1 Roh.
R; 261). The case, however, was taken to the Court of Appeals
of the State, where the judgment seems to have been reversed, unless
the plaintiff remitted $911 if so, then the judgment was affirmed
;
without costs of appeal. The case is not reported in the Court of

Appeals, but presumed that the prmci/ple of the decision in
it is
the court below remains undisturbed ( Yide 41 N. Y. B., 619,

Mfe).
In the late Court of Chancery of the State of. New Tork a case
632 LAW OF PLEDGES.
was decided in which it appeared that D. pledged stock to J. for a

loan, and G. gave his due bill as collateral. The stock was equal
in value to the debt, when D. tendered the amount to J., who
refused to receive it, but retained the stock, which became worth-
less. The court held that these facts discharged Gr. from his obli-
gation to J. and the rule was distinctly laid down that if the
;
amount of the debt for which a pledge is made is duly tendered

to the pledgee and refused by him, and it sinks in value in his
hands, he must bear or respond for the loss {Griswold v. Jackson,
2 Mw. Ch. R., 461).
The Supreme Court of California has recently decided that,
where a debtor has paid a debt which was secured by a pledge, the
pledgee must account for all income, profits and advantages derived,
by him from the bailment {Svmsaher v. Stwrgis, 29 GaL. R., 142).
And the same court held that where a party, who has pawned arti-
cles under a contract to pay greater interest on the money borrowed
than the law allows, tenders to the pawnbroker the principal and
lawful interest thereon, he is entitled to the possession of his pro-
perty, although the statute, establishing the rate of interest in such
cases. Only provides a penalty for, and does not prohibit, the
charging of more than lawful interest {Jackson v. Shand, 29 Cal.
R., '267). The Supreme Judicial Court of Massachusetts, not

many years since, made a decision of more or less interest upon
this point. was decided that where stock is held as collateral;
It
security for thepayment of a note^ and the agreement to reconvey
it, upon the payment of the note, recites that the loss on a certain
house " is bound " by the transfer of the stock, and the holder of
the note has foreclosed a mortgage on such house, the value of
which is less than the amount of the mortgage and interest, he is
not boimd to return the stock until he has been paid for the loss
on the mortgage, including interest, and without being charged,
with any rent which he did not receive. And it was further held
to be immaterial that the maker of the note subsequently guaran-
teed the defendant in a new contract against loss on the house,
and the parties at that time computed the amount thereof. And,
still further, that the holder of the note in such case is not guilty
of laches in not selling the house, when maker authorized him
the
to rent it until it was sold, when the sale was deferred by the lat-
ter's consent, and he never requested that a sale should be made
{Bartlett v. Johnson, 9 Allen^s R., 530).
OBLIGATIONS OF TBE PLEDGEE. 633
Dp&n the debt or obligatian, to secure which a pledge is made,

ng paid or discharged, it is the duty of the pledgee to redeliver the
ne to the pledgor on a proper demand to do so ; and care should
taken that the pledge be delivered to the proper person. The
jsent Supreme Court of the State of New York has held, in a
le where the principle would apply in a case of pledging, that
an action of trover against the bailee of a chattel it is no defense

show a delivery of the chattel to a person not authorized to
seive it.It results, from the very nature of a bailee's contract,
it if he fails to return the article to the rightful owner, but

livers it to another person not authorized to receive it, he is
ilty of a conversion. And it was held, when the parties to a

itract of bailment reside in the same city, that the property
)uld be returned to the bailor, at his residence, unless there is
ne agreement to the eoatrary. The fact tliat, at the time of

! bailment, the property was stored by the bailor with a third
rson, was held not to authorize the bailee to return the property
such third person after hebad ceased to be the agent of the
[der. was declared, however, that when property, bailed,
It
nains in the possession of the bailee, trover cannot be main-
ned against him by the bailor until the article bailed has been
manded, and the bailee has neglected or refused to return it.
it if the property has been delivered by the bailee to a third
rson, such delivery amounting to a conversion, it was held that
)of of demand and refusal is not necessary.
This was the case of a loan of a chattel, to be returned on

(uest and the only difference, in this respect, between sucli a
;
lE and an ordinary pledge is, that in the ease of the loan the
lee might be bound to take the property to the bailor, while in
it of a pledge, the pledgee need only redeliver the chattel to
(pledgor, on demand, at the place where he may have it in store
miay v. -Fcmning, 9 Barb. E., 176). Where no place was
eed upon between- the pledgor and pledgee, or bailor and
lee, as to the place where the property should be redelivered?
I civil law provided tha* the bailee might restore the property
the place from which he took it. But this rule has not been
)pted in this country ; aud in any event the pledgee is liable
le delivers the pledge to a person unauthorized to receive it, so
t it is out of his power to deliver it to the proper person on
uand.
80
634 LAW OF PLEDGES.
A few years ago an interesting case was before the Court of

Queen's Bench, of England, involving the question of the liability
Goods pledged
of the pledgee in respect to the -property pledged.
with a pawnbroker were lost through a burglary on his premises,
caused by his negligence. The owner laid a complaint before
justices, under 40 Geo. Ill, ch. 99, § 14, against the pawnbroker for
refusing, without reasonable cause, to deliver up the goods upon
tender of the proper amount. The justices made an order that the
pawnbroker, not having shown reasonable cause to their satisfac-
tion to the contrary, should deliver up the goods, or, ia default, ,
compensate the owner. The court held, on a case stated, that the
order was bad § 14, under which the order was made, in effect
;
applying only to cases of willful refusal by a pawnbroker to deliver

up goods actually in his possession and that the justices should
;
have made an order under § 24, which empowers th^ to award

compensation to the owner, if, "in the course of any proceedings"
under the act, they shaU find that the goods were lost "through
or willful misbehavior" of the pawnbroker
'
the default, neglect

{ShacMl^. West, 2 MUs
and E. JR., 326). It will be observed
that no question wasmade in this case as to the liability of the
pawnbroker, upon the facts proved. The only question really
made was one of practice under the English statute, which had
nothing to do with the merits of the case, and is, therefore, not
important here.
The question of negligence may depend on the nature of the
thing, bailed. In an early case in England, where the owner of a
cartoon, painted on paper and pasted on canvas, deposited it with
a gratuitous bailee, who kept it in a room next a stable, in which
there was a well that had made it damp and foul, it was left to
the jury whether this was gross neglect. They found this ques-
tion for the plaintiff, with thirty pounds damages, and the court
refused a new trial, because on a bare leaving a thing in another's
custody the law raises a promise not grossly to neglect or abuse it'
(Myttoon V. Cock, Stramgis R., 1099).

In another more recent case in England, where the plaintiff had
given £32 10«. to the defendant, a coffee-house keeper, in whose
house he was staying, to keep safely for him without reward, and
the money was stolen, together with a larger sum of the defendant's
own money, the judge left it to the jury to say whether the defend-
ant was guilty of gross negligence, and he told them that Ihe loss
OBLIGATIONS OF TSB PLEDGEE. 635
the defendant's own money did not necessarily prove reasonable

re. The jury found for the plaintiffj and the direction of the
idge was upheld {Doorman y. Jenkins, 2 Adolph. cbEl. R., 256).
These last two mentioned cases were those in which the defend-
ts were grat/witous bailees but they shed light upon cases where
;
e bailment is beneficial to both parties, as cases between pledgor

d pledgee. In the last case, it was held no answer to the action
at the defendant had exposed his own goods to the same peril as
e plaintiff's, and, of course, it could not be expected that under
nilar circumstances the same plea would protect a remunerarted
,wnee or pledgee.
The evidence of negligence in the case of ShacTedl v. West (2
llis & K a., was that the pawnbroker had left his
326),
luse, without any person in it, on the night of the burglary and ;
jckbum, C. J., said that it was a s.tronger case to impute culpable

3hes on the part of the pawnee than the case of Healing v. Coir
dl, to which he referred, where the question was whether leaving
luable goods in the appellant's house during the night, without

y person on the premises, was a careful dealing with the goods
r the pawnbroker, in which case the judgment was against the
ipellant.
A bailee dealing negligently with goods entrusted to him does not

be liable as
areby necessarily lose his character of bailee, so as to
r a conversion. To make such must be some
a conversion, there
pudiation by the defendant of the owner's right or some exer-
ie of dominion over them by him inconsistent with siich right,
pon- this principle, the removal of goods in transitu by a ship-
ng agent to a warehouse for his own convenience was held by

e English Court of Common Bench not to be an excess or breach
duty which should render him liable in trover for the loss of
e goods by an accidental fire {Heald v. Carey, 11 Com. Bench
.,,9T7; S. a, 16 Jwr., 197; 21 S. J., HT. S. C. P., 97).
But the bailee is always held to be liable where he has deter-
tned the bailment by an active wrong, as by selling the goods
iled, by misusing them, by treating them in a manner incon-
itent with the bailmentand, a fortiori, by destroying them, for
;
e bail is thereby determined and the possessory title reverts to

e bailor, so that the right of possession is sufficient, without hav-
% actual possession ; and where the bailment is determined in any
inner, trover will lie at the suit either of the pawnor or of a
636 L^W OF PLEDGES.
3)urchaser from him against the pawnee. These are points which
are well settled, espedaily by adjudications in the English courts
{ Vide Cooperv. Willmatt, 1 Oom. Bench H., 672 Jfrnn v. Biitle ;
Stan, 1Ex. B., 152 ; Franklm v. iVeasfo, 13 Mees. <& Welsh. B., 481,
485 ; Sehoyn's Md
Brim, 12th ed., 1340^ 1841).
So, also, the law is well settled that if, on demand, the money
or other thing necessary for the redemption of the pawn he ten
dered to the pawnee and he re&ses to give it up, such demand,
tender and refusal would ordinarily be evidence of a tortious con-
version of the pawn, which is considered as being instantly
reduced into the possession of the pawnor, who may therefore in
such a case maintain trover for it. And it would be for the
pawnee to give evidence of a loss by casualty or otiierwise. These
points have been decided in cases already referred to, and others
may be cited to the same import ( Vide BateUfe v. Damis, Cro.
Jac, 244 S. O., YeU. B., 178 Isaac v. Clarlc, 2 Bids. B., 306).
; ;
But when the action is for loss or damage, it has been before shown
that the onus will be on the pawnor to show negligence on the part
of the pawnee; and the question of negligence is always for the
jury, provided there is any proper or sufficient evidence on the sub-
ject {Doorman v. Jenkins, 2 Adol/ph. <6 El. B., 256).
But the matter of the pledgor's remedy against the pledgee ia
respect to the pledge wUl be more appropriately considered in a
subsequent chapter.
The editor of the Pawnbrokers' Gazette of London has fur-
nished some opinions given by eminent counsel on the pawnee's

the pawn, under particular circum-
liability for loss of or injury to
which are inserted by Mr. Turner in a note in his little
stances,
work on the Contract of Pawn ; the substance of which may be
taken to conclude this chapter.
The late Common-Sergeant, Newman Knowlys, in 1819, was
asked his opinion in a case where a coat, which had been twenty
months in pawn, was found, upon its redemption, to have been
seriously injured by moth. The magistrate at Shadwell Police
Court thought that the pawnbroker was liable, but consented to
suspend his decision until the learned common-sergeant had been
consulted.
Mr. Knowlys said :
"I am of opinion the pawnor must fail on
the facts here stated. This case must be decided upon the ground
of the right of the parties to recover. Supposing an action at
OBLWATI&m OP 1BE PLWDOES. ggj
J had been brought, and the same proof given by competent

taesses, the great case of Goggs v. Bernard (in 2 Lord Ra/y-
lad, 916), which is univergally acted wpcm, decides the case in
or of the pawnbroker. Lord Holt, in delivering his judgment

that case, mentions the different cases of bailment, and applies
J law distinctly to each ; and in speaking of the fourth sort of
ilment, viz., Vadium orpo/uon, he considers in the second place

mhat Mglects the pawnee shall answer, and he says in that case
'.lawregwres noihJmg extraordma/r'y qfthe pa/wnee, only that

shall use an ofdinary coA'e for restoring the goods. The
miee is not like the common carrier, an insurer at all events,
jept for the act of God and the king's enemies ; if the pawnee
js the same care respecting the goods pawned as men generally
;respecting their own property, he is not answerable for any
mage or deterioration that the goods may undergo whilst under
I care. If he has suffered his warehouse to be out of repair,
i the goods have received damage by weather, that would be a

fault, and he must answer for it ; or, if he leaves his doors and
ndows open all night, and the goods are stolen, he must answer,
it in this case the pledge has received damage from moth in the
irse of twenty months' keeping, and I conceive that cannot be
d to be a default. I happen to know by experience in my own
oily, and in those of several of my friends, that after the utmost
•e and attention toward that particular mischief, silks, furs and
lolens have suffered considerable deterioration in less than a
arter of the time here specified. The pawnee is not an insurer
linst all possible loss or deterioration, as is clearly established
the case cited. The words of the statute 39 and 40 Geo. Ill,
99, do not express any such obligation, and, when construed
on legal principles applicable to the cases of pledge, do not, in
' opinion, render the pawnbroker liable in any case circum-
nced like the present."
The case was sent back to Mr. Common-Sergeant for reconsid-
rtion, but he adhered to the view before given, saying " I take :
that on the principle of the pawnee's having a qualified pro-

rty in the goods, it is, that if he takes the same care of them as
aan would take of his own goods, he is not only excused in a
al loss, but can, even after a total loss, still maintain his action
linst the pawnor for the money advanced even upon lost goods,
le terms d/efmtlt andnegleet, used in the act of parliament, must

638 LAW OF PLEDGES.
be construed seeundum subjectwm materwn, as the law tten bore

upon it, and must be confined to such damage or loss by default
or neglect as would have sustained an action against the pawnee
by the pawnor at common law. Such action, upon the aBthority
of Cdggs v. Bernard, could only be sustained upon proof of
crassa negligentia, and wduld be defeated if it appeared that the
pawnee had used the common and ordinary care that a man would
use with his own concerns. So much for the law. If it shall be
held that the pawnee, in all cases of woolen or silk or linen
goods being' deposited with him, is to be at the trouble and
expense of having them all daily or weekly unfolded and brushed,
or otherwise dealt with, for fear the moth should either have
deposited its eggs in it at the time they were brought in, or dur-
ing 'their abiding in pawn, I apprehend it might very probably

induce the pawnbroker to decline the taking in of goods of that
description, and so the means of raising an occasional supply of
money would to that extent be cut
(so indispensable to the poor),
off, which in my opinion is an argument in point of policy, in
addition to what has been urged upon legal principles, in support

of the opinion I have conceived on the subject. In the case of a
large stock of woolen garments the pawnbroker would actually be
obliged to become a scourer by trade as well as pawnbroker. If
the defendant in the present case has kept his woolen clothes as
fairly as the rest of the trade have done theirs, I cannot but con-
ceive that he has done all that the law requires."
On the same principle. Lord Campbell, when attorney-general,
advised that where a pawnbroker, in answer to a summons for
compensation, showed a loss by robbery, the plaintiff could not

recover :am of opinion that the magistrates have no power
"I
under the act 39 and 40 Geo. Ill, ch. 99, to compel the pawnbroker
to make satisfaction to the pawners of goods lost under the cir-
cumstances stated. The action only applies where the pawnbroker
does not show any reasonable cause for not returning the goods,
"
and a reasonable cause is stown by the goods having been stolen
[without negligence on the part of the pawnee].

In a similar case, heard at Worship street in 1818, at the sugges-
tion of the sitting magistrate the late Mr. Adolphus was asked for
his opinion on this question of liability. The learned gentleman

said :
" I have bestowed much attention on this case, and have
well considered all the authorities on the subject, not so much
;
GBLIBATIONS OF THS PLED&EE. 639
because I felt any great difficulty about it on the first perusal, as

out of respect to the worthy magistrate who does me the honor to
believe that my opinion can assist in removing any doubt which
exists in his mind.
" Viewing the pawnbroker, first, in the light of a bailee at com-
mon law,,! am clearly of opinion that, under all the circumstances
above stated, he is not answerable to the pawnor for the goods
which have been stolen by robbers. It is too loosely stated in
3ome books that if a man pledge goods and they are stolen, the
bailee shall not answer for them, or that the bailee shall not, in
such case, answer for them, if he took as much care of them as he
did of his own goods. A man who takes in pavm for profit, has a
bigher duty thrown upon him. The pawnee is answerable for all
defects of care, diligence by which the property is lost
or negligence
and, therefore, if it was conveyed away by sleight, embezzled by a
servant, or snatched from his hand, his counter or his vsdndow by a
thief who came in suddenly, he would be answerable for it. But
if it was taken from his person by robbery, or from his house by
burglary, he would not be answerable ; and in the present case he
is not answerable. Robbery or burglary can b,e no more prevented
by him or by care taken, than those accidents by tempest, flood or

fire, which are called- the acts of God, or those invasions of the
enemy, or tumultuous risings of the people, which can only be
restrained or impeded by the public, and not by individual force
or foresight. This distinction, which governs this case, is recog-
nized by all writers. Indeed, there is hardly a difference among
them. (See'Bacon's Abridm., Gwillim's ed., Bailm. B., and notes
the learned and ample opinion of Holt, C. J., in the case of Coggs
V. Bernard [2 Lord Maym., 909], particularly at page 917, with
the marginal notes and references by Mr. [afterwards Judge] Bay-
ley. See, also, Jones on Bailments, p. 44, n., for the difference
between private and forcible stealing, with the authorities ; also the
same work, p. 75, for the general law on the subject.) If the law
has varied in more recent times, it has rather been relaxed than
strengthened against the bailee ; for where a man undertook, for
hire, keep the goods of another, and they were stolen by the
to
bailee's own servant. Lord Kenyon held that an action against him
Bould not be maintained, even where it was proved that he had been
told that his servant was dishonest {Finucane v. Small, 1 Esp., 315)-
"I come now to consider how the pawnbroker is affected by the
640 LAW OF PLEDGES.
statute 39 and 40 Geo. Ill, ch. 99. In respect of his duty as bailee,
I think it makes no alteration ; it only gives summary remedies in
certain cases. The fourteenth section is made to govern cases where

the pawnbroker, having possession of the pledge, or having parted
with it within twelve months or fifteen months, under certain cir-
cumstances, neglects or refuses to deliver it up to the pawnor, and

for such neglect or refusal does not show reasonable cause to the
satisfaction of a justice ; I say that the fourteenth clause governs
those cases, because the twenty-fourth clause provides a remedy
where pawns are embezzled or lost, or damaged through the
default, neglect or willful misbehavior of the pawnbroker."
Although the statute of 39 and 40 Geo. Ill, ch. 99, is referred to
in these opinions, it will be observed that that statute has reference
only to ihe proceedmgs to enforce the liability of the pledgee, and
does not, in the least, affect the question of the pledgee's liability
itself. It is obvious, therefore, that these opinions of the eminent

English lawyers are just as suggestive in their application to the
subject here as in Great Britain. These opinions are not authority,

of course, because not jwUciall/y declared, and yet they are enti-
tled to very great respect, on account of the conceded ability and
distinction of the gentlemen who gave them. The law has, doubt-
less, been correctly expounded by these learned counsel, in the
mam / but their opinions are, nevertheless, open to criticism in
two or three of the positions taken.

In respect to the case of damage by moths, it would probably
be requiring too much of the pawnee, as Mr. Knowlys suggests,
that he should " be at the trouble and expense of having all pawns
of goods, liable to be destroyed by moths, daily or weekly unfolded
and brushed." Still the pawnee should be bound, in such a case,
to resort to some of the known means, such, as using camphor or
other drug which kills these troublesome insects, or, as most
people know by experience, there would not be much left of any
woolen garment or article of fur at the end of twelve months. It
seems less than ordinary care to store goods of this nature, wi
out taking any such precaution ; and it is, at least, as unreasonable
for the pawnee it would be for the pawnor
so to store the goods, as
to require the pawnee keep a staff of persons incessantly
to
employed in unfolding and brushing them. The only defect in
Mr. Knowlys' view, therefore, would seem to be that, in the particu-
lar case before him, he does not require quite enough of the pawnee
0BLI&4TJQN$ OF TSM fJUW^DGEE. 64J
And Mr. Adolphns certainly errs in the opposite direction when

e says:"A man who takes ia pawn for profit has a higher duty
irown upon him. The pawnee is answerable for all defects of
ire, diligence or negligence by which the property is lost and, ;
\erefore, if it was conveyed away by sleight, embezzled by a ser-

ant, or snatched from his hand, his counter or his window by a
lief who came in suddenly, he would be answerable for it ; but if
; were taken from his person by robbery or from his house by
urglary, he would not be answerable ; and in the present case he
1 not lanswerable, for the cases there put are eases in which no
egligence can be imputed to the pawnee, and in which, there-
)re, he ought not to suffer." The mistake in this view of Mr.
idolphus is in assuming that the _fdot of the loss of the property
1 any of the ways supposed is conclusive upon the, question of lia
ility of the pawnee. The rule is that in all such cases the ques-
ion still is one of negligence, to be settled by the circumstances of
bieparticular case. The difficulty is not so much in stating the rule
8 in applying very easy to say that the pawnee is liable
it. It is
Dr gross negligence, but it is not at all easy to draw the line at
rhich gross negligence begins. The solution of this nice and deli-
ate problem is very properly left to the decision of the jury, who,
5 men of the world, and with a knowledge of business, are pecu-
arly fitted to express an opinion. If they find that the pledge
as been lost in the case before them through the fault of the
ikdgee, he will be held responsible forhowever the loss
it,
ccurred but if, on the contrary, they find that the loss was not
;
rom a want of proper and reasonable care and diligence on the

art of the pledgee, he wiU be excused. The pledgee must in all
ises abide the loss, where it occurred from any cause which a
ireful and vigilant man could not have avoided.
In addition to what has already been said, it may be added that

16 Superior Court of the city of New York has very recently
ecided that if, to a demand for the return of loaned property, the
>anee answers that he has used the property, and has obtained
loan thereon (the property not having been lent for that purpose),
lis is sufficient evidence of a conversion. And it was held in the
ime ease that the measure of damages in ah action for the conver-
on of property is its highest market value between the date of the
aversion and the trial {lifavmcm v, Oaldwell, 2 Sweeny's R,, 212)
91
642 LAW' OF PLSDSES.
OHAPTEE XLIX.
EEMEDIES OF THE PLEDGOR T^ EESPECT TO THE PLEDGE WHEN HH —
MAT BEDTG HIB ACTION OF TEOVEE OE EBPLEVIN HIS ACTION IN —
EQUITT TO EEDEEM HIS ACTION WHEN THE PLEDGE 18 WrTHOUT
LEGAL CONSIDEEATION.
The and obligations of the pledgee, in

rights, remedies, duties
respect to the pledge,and the debt or obligation for which the debt
was made, have been fully considered, and the rights of the pledgor
in respect to the property pledged, have been heretofore dis-
cussed. But it is necessary to dwell more directly upon the sub-
ject of the remedies of the pledgor after the termination of the
contract of pledge.
Where the thing pledged is an ordinary chattel, such as a watch,
a carriage, a horse, or the like, and the contract has been termi-
nated by the payment or tender of the debt or obligation which the
pledge was made to secure, or in any other. way than by the sale
of the pledge, the pledgor has a remedy at law, on demand of the

pledge, by an action of trover or replevin. And it has been held
that the pawnor may sue a pawnee, through whose negligence the
pawn has been injured or lost, in assumpsit, for breach of contract,
for, in all cases of bailment, the promise is implied by law that the
bailee was to use reasonable care {Hoss v. SUl, 2 Eng. Com.
"
Bench B., ^11).
So where the bailment has been determined by any active wrong
of the bailee or pledgee, as by selling the goods pledged, by mis-
using them, or by treating them in any manner inconsistent with
the bailment, trover will lie, at the suit either of the pledgor or of
a purchaser from him, against the pawnee, for a wrongful conver-
sion {FrmUin v. ITeaU, 13 Mees. dbWelsi. R., 481, 485). And
the same would be the rule where the money or other thing neces-
sary for the redemption of the pawn has been tendered to the
pawnee. On the pledge in such case being demanded by the
pledgor of the pledgee, and the latter's refusal to give it up, the
pledgor may maintain trover against the pledgee for the value of
the same {RatcUffe v. Da/ois, Oro. Jog., ?44).
It was, at a very early day, held by the courts of England that

the remedy of the pledgor against the pledgee was in accordance
with this statement ; and it was (iecided th»t if a bailee of jewels
REMEDIES OF THE PLEDGOR. 643
r safer custody to another, the owner may maintain

pawn them
jver against the pawnee {JJartop v. Scare, 2 SPr. E., 1187).
If the goods are injured by a stranger or taken by him from the
iwnor, the pawnee may sue for damage to his reversionary interests
,d the bailee to his possessory rights. And it has been held by

8 Court of Common Pleas of England that the pawnor may main-
in trover against a purchaser of his goods from the pawitee, even

ough the purchase was hona fide {Oooper v. WiU^matt, 1 Com.
ench B., 672). But this, of course, must be qualified to the
:ect that the sale of the pledged goods by the pledgee was void,
so irregular and unjustifiable that no title could pass.
In respect to the damages recoverable in these cases, when the
tion is in trover, the general rule is that the value of the pro-
rty converted is the measure of damages. But this rule is sub-
ct to many exceptions. If the defendant be clearly a wrong-
er, omnia proBsunvwrvt/ur contra spobiatoremh applies ; as where
e defendant detained a jewel, the jury were told to presume the
•ongest againsthim, and make the value of the best jewels the
3asure of theirdamages (Armory v. Dela/miric,, 1 St. M., 505).
ad special damagesi may be recovered for the detention of the
operty over and above its value, as in trover, by a carpenter for
stools whereby, it was alleged, he was prevented from working
;
his trade {Bodby v. Reynolds, 8 QueerCs Bench R,, 779).

When the goods have fluctuated in value, it seems very much
the discretion of the jury to say at what point of time the value
all be taken, whether at the time of taking, or at the day when
3 was highest or lowest; although, in a case heretofore
value
'erred to, the Superior Court of the city of IS'ew York held, as
itter of law, that when the loanee of property pledged the pro-
fty to secure a loan, the owner might bring his action for the
aversion of the property,and that the measure of damages in

3 was the highest market value between the date of the
action
iversion and the trial of the action {Navman v. Catdwell, 2
ieeney^s B., 213).
tf the taking of the property was not only wrongful, but willful,
in the measure of damages in the action for the conversion is
! value of the articles at the highest estimate between the date
conversion and the trial. But it seems to be understood that
8 should never be the rule when the pp^rty has acted ionajid^
ide Sedgwick on JBmmges, 478,'495),
644 LAW OF PLEDGES.
It has been heretofore stated that, in cases of pledge, if the

pledgee tortiously sell or deal with the pledge, the pledgor's right
of recovery is clear ; hut that the pledgee has a right to have the
amount of his debt recouped in the damages {Story on Bedim.,
§ 315). And a case quite recently came before the English Court
of Common Pleas, where A. deposited a dock warrant for certain
goods with B., as security for a loan, to be repaid on a certain
day, with liberty to B. to sell the pledge on default. A. became
bankrupt, and B., before the day of payment, entered into an abso-
lute contract for the sale of the goods he handed the dock war-
;
rant to the dock company on the day of payment, and the vendor
took actual possession of the goods the day after. The court held
that this was a wrongful conversion of the goods by B., but {dis-
sentiente, Williams, J.) that the measure of damages was not the
full value of the goods, but the damage which A. had actually
incurred by the premature sale, which, in this ease, was merely
nominal {Jphmon v. Stear, 33 L. J., K S. C. P., 130).
In detinue the damages are, in general, merely nominal, but the
jury find the value of the articles detained ; and the common-law
judgment is, that the plaintiff recover the articles or their value,
together with the damages and costs found by the verdict, and the
costs of insurance {PhilUps v. Jones, 16 Queen's Bench R., 85&).
And specialdamages may be recoverable for the detention, if laid
in the declaration {WilUwms v. Archer, 5 Com. Bench R., 318).
But it seems that if no special damages be alleged, or only colora-
bly so, the defendant may, in general, obtain an order for a stay
of the proceedings on delivering up the goods or deeds in ques-
tion, and paying nominal damages and costs or if the plaintiS;
insists on proceeding for damages, the order will be for the deliver-
ing up of the deeds or goods, and that the plaintiff shall bte subject
to the costs of the action, unless he recover damages beyond
nominal damages for the detention of the goods ( WiUiami< v.
Archer, swprci) but not, in general, where the goods have been
;
sold, and it is imcertain whether they were sold for the real value
or not (Gibson v. Humphrey, 2 Bowl. R., 68). At least, it has
been held in accordance with these statements in Eiigland, and a
similar practice is recognized in this country.
An action for the recovery of chattels detained is an action to
try a right, beside the mere right to recover damages, and, there-
fore, has been held not to be within the English common-law pro-
KEMEBIES Of THE PLED GOB. 645
jdure act of 1860, which enables a judge, in any action for an

leged wrong, to certify to the contrary, in order to deprive the
iaintiff of his costs npou recovery of less than £5 (23, 24 Vioi.
ip., 126, § 34; Dcmh/ v.Zamb, 31 Z. J., If. S. G. P., 11).

It has been held by the English courts that in trespass for dis-
aiiiing goods (as pawns), which are not distrainable, the tenant
m only recover for the actual injury he has sustained {Harvey v.
ÔGOck, 11 M&es. and Welsh. B., 740). If the seller of the goods
itake them from the buyer before they have been paid for, it is
jld that the buyer may, nevertheless, recover the entire value as
mages in trespass, and the jury can allow any deduction on
icount of the debt the buyer owes the seller for the price unpaid
rillcmd V. Brittam, 8 Mees. and Welsh. £., 575). And it is held

lat, in an action of debt, the plaintiff is to recover the sum in
umero, and not a compensation in damages, as in those actions
Mch sotmd in damages only, as assumpsit. The damages given
r the detention of the debt are merely nominal {/Seheyn's Nisi
'rius, 570).
where no circumstances of aggravation are shown,
In trespass,
(6 be regarded as one of trover, and the value of the
action is to
•operty, with interest, furnishes the measure of damages {Sedg-
ich on Damages, 530). But Alderson, baron, in one case

iserved that it was entirely a question for the jury what damages
ey would allow. " Juries have not much compassion for tres-
issers; and I do not think they were bound to weigh in golden
ales how much injury a party has sustained by trespass " {Lookley
Pye, 8 Mees. and Welsh. R., 135).
In debt or in, assumpsit between the parties to this contract
Jtice is immaterial, and indeed is held to be irrelevant to the
5ue raised ; and the damages should be limited to the pecuniary

38 resulting from the breach of contract {Broom!s Gom/mentaries,
I ed., 613, Omd vide
Fletcher v. Taylewr, 17 En^. Gom. Bench.
'.,21, 29, per Willes,J.).
The foregoing authorities are mostly from the English Eeports,
it the doctrine of those cases is similar to the decisions of the
merican courts upon the subject. The Supreme Court of Indiana,
taewhat recently, held, appeared that the pledgee of a
where it
fotiable promissory note settled with the maker for less than
e face, that the pledgor may sue the pledgee for the value ol
;
646 LAW OF PLEDGES.
the pledge without a previous demand {Dejmy v. Clark, 12 Ind.

R., 427).
It was held at a very early day, by the courts of New York, that
where the pawnee has incapacitated himself from performing the
contract on his part, as by selling the pledge, the pawnor need
not tender the sum borrowed, in order to entitle himself to an
action. So held by Kent, 0. J., in a ease before him, but which
was settled by the parties before judgment, although his opinion,
to this effect, was prepared and reported {Gortelyou v. Zansmg^2
Gaines' Gases, 200). And the Supreme Court of Indiana held,

an early day, that on payment of the debt for which a note
also at
was pledged the absolute property therein vests in the pawnor
and if the pawnee afterward converts it to his own use, the pawnor
may maintain an action of trover for the note {Elliot v. Arin-
strong, 2 Blackf. R., 198).
A case came before the Supreme Judicial Court of Massachu-
setts, in which it appeared that the certificates of the stock of a
company were, by a vote of the company, made transferable by
indorsing on them the name of him to whom they issued and ;
one of the company, who held such certificates, indorsed and

pledged them as collateral security for a debt, which was after-
ward paid from by his agent, who received the certifi-

his funds
cates, and afterward pledged them so indorsed as security for his
own debt. The court held that the last pawnee, who knew not
the pawnor's defect of title, might hold them, as against the ori-
ginal owner, till the debt for which they were pledged to him
should be paid. And on tjie amount of that debt the
tendering
original owner of the was held entitled to recover the
certificates
value of the stock, deducting the amount of the debt which had
been tendered, though an action was pending against the pawnee
by an agent of the pawnor, who claimed the certificates under a
supposed lien of the principal thereon, arising from a debt of the
original owner incurred before the pledge was made to the defend-
ant. Two of the judges dissented, but the judgment of the
majority of the court was in accordance with this statement {Jwr-
vis V. Rogers, 13 Mass. R., 105 S. G, 15 ii., 389).
;
Although the pledgor has in all cases the right to redeem the
pledge, still, if the pledge is sold, and there is a surplus over and
above the debt of the pledgee, this surplus belongs to the pawnor,
and he may bring his action of assumpsit against the pawnee to
BEJUUDTES OF TBE PtEDGOB. 647
Bover the same. Where the pawnee exercises this liberty of

lling pay himself, and there remains a surplus, he
the pledge to
comes the trustee of the pawnor in respect to it and the latter ;
ly at all times waive his right to redeem the pledge, if he is to
,ve the surplus {Stevens y. Bell, 6

. Mass. R., 343). On the
Jemption of the pledge by the pledgor, the pledgee is bound to
turn the pledge to the pledgor, and account to him for the rents
,d profits, if any, of the thing pledged; and the pledgor may
jover the same by the proper action against the pledgee. So
Id by the Supreme Court of North Carolina many years ago,
d the doctrine is in accordance with law {Horton v. Eolliday,

Murph. S., 111). The Supreme Court of New Hampshire
Id, several years ago, that where notes have been pledged to
3ure a claim upon which judgment has been recovered, interest
ould be cast, on the notes so pledged, to the time of their pay-
3nt; also upon the judgment to the same time. And that in an
tion brought by the pledgor to recoTer back the surplus, the
lintiff is entitled to interest upon the excess of the proceeds of
e notes over the amount received fqr the judgment up to the
ndition of his judgment. Notes which had been pledged to

3nre a claim upon which, afterward, judgment was recovered, as
ey became due were paid to the pledgee. The court held that
e money so received would be treated as having been applied in
Maction of the judgment, and would not be regarded as a fund

be recovered back by the pledgor, subject to be reduced by the
dgment as a set-off {Kmg v. Hutchins, 8 Foster's R., 561).
The Supreme Court of California, not long since, held that a
rty by pledging negotiable securities, .transferable by delivery,
168 aU right to the secixrities when transferred by the pledgee

good faith to a third party, and the pledgee in such a case
3uld be treated in the transaction as the agent of the owner, and
3 owner should be bound by his acts in the premises. But, of
urse, the pledgor can bring his action against the pledgee to
upel him to account for the disposition of the securities by him
oit v. Eumh&rt, 5 Cal. E., 260).
Besides the legal remedies of the pledgor referred to, the pledgor
ly, if he please, go into a cotirt of equity for relief. And if a
le for redemption of the pledge is fixed by the contract, still the
idgor may redeem it afterward if he applies to a court of equity
thin a reasonable time. If no time is specified for payment, the
;
648 LA W OF FLED&ES.
pledgor may redeem it at any time during his life, unless he is

called upon to redeem by the pledgiee and if he fails in so redeeming
;
it, his representatives may redieem it. But the remedy is at law,
unless' some special ground is shown, as if an account or discovery is
wanted, or there has been an assignment of the pledge {Story^sEq.
Jur., % 1032 ; 2 Spence's JSq. Jwr., §§ 637, 772, 773 ; Kemp v.
Wesihrook, 1 Yes. R., 278 Si/rst v. Peirse, 4 Prions U., 339
;
Demcmd/ray v. Metcalf, Prcui. Gh., 419, 420 Glennie v. Irwm, ;
3 You. (& Coll. P., 436 ; Jones v. Smith, 2 Ves. Jr.'s P., 373).
There are several American! cases holding, in general terms, that
a bill in equity may be filed by the pledgor to redeem goods pledged
for the payment of a debt, notwithstanding that there is a remedy
at law on payment or tender of the sum due [Herat v. Ten Eyck,
2 Johns. Gh. P., 62 Oha^pman v. Turner, 1 GaWs P., 280
;
Flowers V. SprouU, 2 Marsh. P., 56). But the courts of North

Carolina have held that the remedy of the pledgor to redeem his
pledge is, in general, at law, on tender of payment and not by
bill {Doak v. Bank of the State, 6 IredelVs P., 309).
The Superior Court of the city of New York has held that
although the pledgor cannot, in ev6ry case, come into equity to
redeem the pledged goods, yet, where any special ground is shown,
as if an account of dividends received by the pledgee is wanted,
or there has been an assignment of the pledge, a bill in equity
will lie (Hashrouck v. Vandervoor^, 4 Sandf. P., 74).
The Supreme Court of Nevada has recently decided that where
goods are pawned as security for a running account, it is not essen-
tial that the pawnor should tender the amount of the account
before filing a bill in equity to redeem. If the pawnor proffers to
account with the pawnee, and pay whatever is found due on such
accounting, and that proffer is refused, the court held that the
pawnor may bring his complaint tor accounting and redemption at
the same time and if the pawnee has sold the goods, he may have
;
a decree for the balance due him from the proceeds of the sale. In
the case before the court it appeared that county warrants were
pledged to a merchant as security for a running account, and there
was an agreement that the merchant might, at any time, sell the
warrants at fifty cents on the dollar, or take them himself at that
price. The court held that the pawnee would not be allowed to
hold the warrants at that price, unless he should 'clearly show,
either that he notified the pawnor of his intention to take them at
;
REMMDIES OF THE PLEDGOR. 649
the rate of fifty cents, or actually gave him credit at that price on
his books {Beatty t. SyJ/aest&r, 3 Nev. R., 228).
In an action before the present Supreme Court of the State of
New York, at a Special Term, it appeared that on a loan of monej
the borrower pledged cerUfioates of stock to the lender as security,
t\iQ full par value of which was equal to the amount of money
loaned, and the stock, thereupon, was transferred to the pledgee
on the books of the company and; it was agreed that, in default of
payment of the half-yearly interest by the pledgor, or of the prin-
cipal sum loaned, as in the agreement specified, the stock was to
become absolutely and exclusively theproperiy of the pledgee, and
nothing had been paid on account of either principal or interest for
a number of years, and both pledgor and pledgee had treated the
stock mforfeited, under tbe agreement, to the pledgee, who then held
it bat had never taken any proceediflgs to foreclose the pledge, the
court held, in an action by a jvidgmetht creditor qf the pledgor,
brought more than four years after the pledge, that so long as the
stock remained with the pledgee the debt existed and the pledge was
collateral to it, liable to be redeemed by the pledgor
and the stock
that to this iguity of redemption the plaintiff was entitled, as the
creditor of the pledgor, having exhausted his remedy at law and ;
that the rights and equities of the pledgee were precisely those of
the^]m.i\S {Stoker v. CogsweU, 25 Sow. Pr. R,, 267).
The English Courts held, at a very early dayj that where the
pawn has a special and peculiar value to the owner, specific delivery
of it be deereed at the suit of the pawnor, on the same prin-
will
was recognized in the case of the Pusey horn {Pusey v.

ciple as
Pusey, 1 Vern. R., 273). And it was held that a bill lies to com-
pel the delivery {Duke of Somerset v. Cookson, 3
of an altar-piece
P. Wms. R., 389). And, indeed, where there is no peculiar value
to the pledge, a delivery of the same would probably be ordered
between pawnor and pawnee, on the ground of fiduciary relation.

This doctrine has been recognized by several English cases one ;
(vhere furniture was deposited in trust ( Wood v. Rowcliffe, 3 Harems

R; 304) ; and another, where an agent had deposited mortgage
leads {Jadcson v. Butler, 2 Atk. R., 306). And the Supreme
Donrt of Wisconsin has decided, in general terms, that the pledgor
jf securities, having paid the debt secured by them in equity, may
iompel a specific delivery of them to himself {Brown v*. Runals,
\.^Wis. R.,%m).
82
650 ^-Aw OF PLEve:Es.
The Supreme Court of Pennsylvania has 'decided, where a party

assigned certain shares of bank stock as collateral security for the
payment of a promissory note, with authority to sell in case of
non-payment, that the assignor's equity of redemption was barred
at the end of six years from the maturity of the note, the stock
being then of less value than the debt, and the assignee. having
treated it as his own, instead of selling. And it was held that a
court of equity will not grant relief in such a case after a lapse of
eleven years, the stock having risen in value after the assignee's
was barred by the statute of limitations ( Water-
right on his note
itnan v.Brown, 31 Penn. B., 161). And the Supreme Court of
the State of New York has held that, where stock is pledged as
redeem com-
security for a note, the pledgor's equitable action to
mences when the note became due and if it is not brought within
;
ten years from that time it wiU be barred by the statute. It was
declared that such a case comes within the section of the Eevised
Statutes relative to bills for relief in cases of trusts not cognizable
by the courts of law. And it was held that tlie court would not,
to relieve a pledgor from the statute, assume, in the absence of any
allegation or proof on the subject, that there was an agreement
between the parties that the pledgee should keep the stock untU he
should have repaid himself out of the dividends and proceeds. It
seems from the decision of the court that the legal remedy of a
pledgor, by trover, is limited by the New York statute of limita-
tions to six years after the maturity of the note, for the payment
of which the property is pledged {Boberts v. Sykes, 30 Barh. B.,
173).
It has been before stated that, where there is no contract on the
part of the pledgee requiring him to sell the pledge, he cannot be
compelled at common law to do so, and this is the general under-
standing of the law ; and yet a court of equity might interfere in
favor of the pledgor and compel a sale where there are circum-
stances which seem to make it proper, provided it is reasonably
clear that the property would produce more than sufficient to
satisfy the debt, or the property is of a perishable nature ( Vide
Kemp V. Wesa>roo\ 1 Yes. B., 275 ; 2 Story's Eq. Jur., §§ 1031,
1032, 1033).
Upon the subject of the right of the pledgor to come into a court
of equity to redeem the pledge, the Superior Court of the city of
New York, in a miich later case than that of Hasbrowck v. Vamder
BEUESIMS OF THE PLEDBOB. 651
mart, before referred to, declared that a court of equi^ has no
general jurisdiction over actions to redeem personal property
pawned, without some other circumstances rendering its interfe-
rence necessary. The remedy at law is held to be ample, by ten-
der of the amount due and a possessary action to recover the arti-
des pledged, or damages for their detention. The only ground of
equitable jurisdiction over an action for the redemption of personal
property pledged, besides the necessity of a discovery, and perhaps
an assignment of the pledge, is the necessity of taking an account.
It seems to be fully settled that the accoimt on which equity bases
its must be really one that is, not having only one
jurisdiction ;
item on one side and a number of set-ofEs on the other, but a

series of transactions on both sides. And the, court held, that where
an action is brought to redeem certain securities in the hands of
the defendants, as stock brokers, upon paying the amount due
thereon, and for an injunction order restraining the defendants

fromselling such securities until an account can be taken of the
amount due the defendants, it cannot be sustained where it appears
that the claim on the part of the defendants can only consist of one
item : the original advances by them, or so much of it as remained
unpaid.
The court held, further, that every sum paid or to be credited in

that account forms a subject of set-off in an action at law, even
induding any liability of the defendants, as alleged in the com-
plaint any of the original
in the case before the court, for selling
pledged stock below market price, as such liability forms a sub-
its
ject of counter-claim in an action for the loan under the first sub-
livision of section 150 of the Code of Procedure, and, it was held
mMquidated damages for an entirely unauthorized sale of pledged

itocks form no part of an account to give jurisdfc-
or securities can
:ion to a court These questions of practice were very
of equity.
ully and ably discussed by Kobertson, C. J., and he showed very
sonclusively that the positions taken were entirely sound, both upon
mnciple and upon the authority of cases which he examined, and
rhich are cited in his opinion.
The chief judge also discussed the question of the UaMlity of

he pledgee in cases like the one at bar, and held that sales of the
toek below the market price, when duly authorized, would not
made with intent to
nake the pledgee liable for the difference, unless
BJure the pledgor beyond the mere realization of the amount due
652 ^^ W OJS- PLEDGES.
the pledgee, as in other cases of abuse of lawfal authority, and

that something besides a mere sale below the market price is
show such intent. And it was argued that brokers,
necessary to
who are mere pawnees, are not bound to use even the same dili-
gence as an agent to obtain the best price for the pledge sold ; and
an agent would not be held liable except for extraordinary negli-
gence, which must be proved, not presumed. It was stated that
be such recklessness shown in the mode or
•there must, at least,
time of selling as to establish an intent to injure the pawnors
before the pawnees can be made liable for any loss {JDurant v.
HmsUiai, 35 How. Pr. B., 223 S. C, 5 Bob. B., 423).;
A pledgee accepting goods from the pawnor is ordinarily estopped

from denying the title of the pledgor at the time of the bailment,
but may assert that his title has been defeated {Thorne v. Ti^ku/ry,
3T L. J. N. 8. Ex., 407).
In some cases where a pledge has been made to secure an illegal
demand, the courts have held that the pledgor is not entitled to
have restitution of the same, except upon the usual terms of
redemption. For example, the Supreme Court of Tennessee held,
where a person had borrowed money at usurious interest, which
the contract did not exhibit on its face, and gave a pledge for its
repayment, that he could not treat such contract as illegal, and sue
for the recovery of the pledge, without a tender of the money
actually due, and legal interest thereupon. There being ho statute
to the contrary, the general rule in equity in such cases is enforced

there, that he who desires equity must do equity and that ;
requires payment of the money actually borrowed, before the

pledgor can claim the restoration of his pledge [Gauaey v. Yates,
8 Kwnyph. B., 605). And the Supreme Judicial Court of Massa-
chusetts has decided that one who has voluntarily made a pledge,
to secure the payment of an illegal demand against him, is not
afterward entitled to reclaim the same without payment of the
demand.
In this ease the contract was declared to be illegal because it
was made on Sunday, and Chapman, J., who delivered the opiaion
of the court said " Under the instructions given by the judge,
:
the jury may have found that the plaintiflE delivered the watch to
the defendant voluntarily. He seeks to recover it back on the
ground that he delivered it as a pledge for the payment of a debt
which he was not legally liable to pay, because it was for the use
beMedieb of tbe pledgor. 653
)f a horse and wagon which the defendant had let to him to

(nable him to violate the law for the observance of the Lord's
lay. It is true that the law wonld not enable the defendant to
ecover such a debt ( Way v. Foster, 1 Allen, 408). But neither
iyill it enable the plaintiff to recover back his property given in
)ledge for the debt, any more than to recover back the mon£iy
ifter paying it. In all such cases, the maxim jjofe'o?" est conditio
wsddends is applicable. The plaintiff has, at least, as little
ilaim to the aid of the law as the defendant " {King v. Green, 6
men's B,, 139, 140).
It is possible that the decision in the case of Canisey v. Yates,
night have been placed upon the same ground as that in the case
if King v. Green ; but it is probable, that the more appropriate
eason found for it is the one suggested ; that is,, the well settled
ule in equity, that he who seeks equity must do equity. first
)n the contrary, the present Supreme Court of the State of New

fork has recently held thjit a provost marshal could not, under
he act of congress entitled " An act for enrolling and calling out.
he national forces, and for other purposes," passed March 3d,.
.863, exact of drafted men, volunteers, or those offering substi-

utes, the deposit of money
or property to be forfeited to the gov-
irnment if such drafted men, volunteers or substitutes did not
eport themselves at the proper rendezvous; and that such a,
lower could not be conferred upon a provost marshal by either
he war department or the provost marshal-general; nor could
ither adopt, and by adoption ratify and make valid, a pledgfe
xactedby a provost marshal for such a purpose.
The court held that congress, only, could confer such a power,
r adopt and ratify such a pledge where taken without its
uthority, and it was further held, that a public officer who acts
nthout uuthority, or exceeds his authority, is liable as is a private
gent, on the contract made, or for the act done without or in
xcess of his authority ; and that the ratification by the principal
fin not relieve him from such liability to the injured party.
There, therefore, such an agent exacts a pledge of property with-
at authority of the government, and an action is brought by the
ledger to recover it back, while it is in the possession of such
jent ; the decision of the court is, that he is liable for such pro-
erty ; and even the adoption of the act by the principal will not
654 LAW OF PLEDGES.
shield him from liability. The judgment entered at the circuit;
upholding such a transaction, was accordingly reversed.

The opinion of the court was pronounced by Mullin, J., who
examined the case with great care and legal acumen, and the
judges seem to have been unanimous in the result which the
reasoning produced {Rioha/rdson v. Grcmdall, 47 Barb. R., 335).
When this case was before the Circuit Court, the judge held
that the pledgor was not entitled to his action for the restitution ot
the pledge, for the reasons 1st. That the act of requiring indemnity
:
was not only not within any inhibition in the case of public
policy, but was entirely justifiable by the circumstances, if not
one eminently meritorious. 2d. That the act of taking the pledge
did not come within any statutory prohibition of a thing done by
color of office, nor within any definition of it regarded as an
offense .against law or merit. 3d. That the agreement was exe-
•cuted ; and on the principle that in case of an executed contract,
Tvhere the parties are in paî delicto, the condition of the defend
:ant is always preferred, the pledgor could not have his action foi
the pledge without redeeming it; and finally, the Circuit Court
held that there was nothing in the objection that the agreement
was void for wam,t of consideration. It was argued that the action
was not brought upon the agreement; and after a party has vol-
iuntarily performed an agreement, it is too late for him to urge
«uch an objection {Richa/rdson v. Grandall, 30 How. Pr. R., 134).
iBut the court, at General Term, held the agreement was execu-
tory, and could not be said to. be executed until the right of
redemption was foreclosed. It was said, that as well might the
âwnbrok«r insist that he could hold the pawn upon the ground
of the contract being executed that in both cases the property is
;
left in pursuance of a contract which is in one sense executed
when tiie pawn or pledge is delivei'ed, on terms agreed upon

betweea the parties, but it is not executed in the only sense in
which th« term is used in the law where the party is estopped
from asseiiing a claim to the property pawned or pledged. And
it was also held at General Term that the pledge was wholly with-
out consideration, and for that reason the pledgor might recover
the property pledged.
And in opposition to the decision in 8 Humphrey, the
Superior Court of the city of New York has decided that under
the usury laws of the State, where the owner of stock pledges it
;
Sfwect of banks upt la ws. 655
IB the payment of a usurious loan, he may,

collateral seeiirity for
)n demand of the stock and a refusal to return it, recover its value
:n an action of trover. But it will be recollected that, by the
statute of New York, a usurious contract is actually void, and this
nakes the rule different from that which prevails in Tennessee
'Gomland v. Dwois, 4 Bosw. E., 619).
CHAPTEE L.
THE OPERATION OF 3ANKRTJPT LAWS IH OASES OF PLEDGE THE —

DOCTKINE OF THE ENGLISH AUTH0EITIE8 UPON THE SUBJECT
THE DOOTEINE OF THE AMERICAN CASES ON THE POINT.
Theee has been considerable discussion and not a little litigar
ion, especially in Great Britain, in respect to the effect of bank-

rupt laws upon the rights of the parties to a pledge. It was, at
me time, doubted whether a pawnbroker was a trader subject to
;he provisions of bankrupt laws ; but the doubt seems to have
seen removed, at an early day, by the holding of the judges that
1 pawnbroker remained liable to them, as such, even though he
lad ceased to take in pledges, but con tinned to sell the unredeemed
pledges he had on hand {Highmcm v. Molloy, 1 Atk. R., 205
Ecmlinson v. Pea/rson, 5 Barnw. & Aid. R., 128).
In 1861 the British parliament passed an act to amend the bank-
ruptcy laws, which has been held and place
to control the question
t at rest (24 cmd 25 Yict. ch. 138). But at common law and in
iûity a pledge deposited as a security for money advanced is
n tlie nature of a mortgage, and can only be redeemed on payment

)f the money due, so that, in most cases, the property of the bank-
nipt must be sold, and the deficiency proved as a debt
in pledge
Expwrte Twogood, 19 Ves., Jr., R., 231). There can be no tack-
ng, however, by the pawnee against creditors or assignees for valu-
ible. consideration ( Adams v. V<m-
Glaxton, 6 Ves., Jr., E., 226 ;
l&rsee v. WilUs, 1 Bro. 0. C, 21). But an equitable mortgagee,

laving a simple deposit of title deeds and no power of sale, cannot
•ealize without an order of the court, made on petition and the ;
jourt will not interfere where the deposit is made to a solicitor to
\eQiaie future costs {Ex

farte Wake, 2 Bea. R., 352). It has been
leld, however, that a petition is not necessary where the sale takes
656 LAW OF PLEDGES.
place by agreement with the assignees, and where there is no dis-

pute between the parties {Mo parte WKUehread, 3 Dea. B., 311).
The Bankrupt Law Consolidation Act of England, passed in
1847, gives the assignees of a bankrupt power to redeem goods
deposited or pledged, by the payment of money or performance of
condition, as fully as the bankrupt himself could have done (12
a/iid 13 Vict., ch. 106). This may be regarded as a legislative
recognition of an equitable doctrine in these cases ; and, accord-
been held, where a bankrupt had contracted to buy
ingly, it has
some bank shares, leaving the certificate in the hands of the vendor
as a security for the purchase-money, that the latter was entitled,
an equitable mortgage, to an order for the sê of
as in the case of
the shares in satisfaction of the unpaid purchase-money, with
liberty to prove for the difference, in conformity to the rule that
a bankrupt's property pledged must be sold and the excess proved
as a debt {Mb pa/rte SJiejpherd, 2. Mont., Dea. & DeG. R., 431).
And it has been held that the deposit of a purchase deed, assign
ing a house and also the furniture in it, will not include the furni-
ture where the memorandum of deposit does not mention the
furniture. It seems the furniture should be expressly named in
the agreement, and a schedule of the articles annexed to it if it is
to be affected by such a deposit {Mc parte Mwnt, re. Amer, 1 Mont.,

Dea. (& De G. B., 139). Where money has been advanced by a
creditor to the bankrupt, either upon a mortgage or other security,
which fails through bankruptcy intervening, proof may be made
for the amount of money advanced {Mx parte Ccfrnvng, 9 Yes., Jr.,
E., 115). And if a security is deposited generally for past and
future advances, and at the time of the bankruptcy the creditor
has two demands against
his debtor, one provable under the Hat
and the other he may apply his security, in the first instance,
not,
to reduce that demand which is not provable {Ms parte Hunter, 6
Yes., Jr., R., 94). And a creditor who has a bond deposited
with him may apply it to part of the debt, and prove for the resi-
due. It is held that the court will not order the security to be
given ap {Expa/rte Amphlets, 1 Mont. R., T7).
It has been decided that a mortgagee or a pawnee may either
pray a sale and prove for the deficiency, or he may throw up his
securities and prove his debt generally, without prejudice to his
plaini or any surety for the debt, or he may take the security at
its value and prove for the difference {Ms parte Grose, 1 Atk. R.,
EFFECT OF BANKS UPT LA WS. , 65 7
105; Esopa/rte Burnett, 2 *5, 528). If he wishes to vote in the

choice of assignees, he has a right to require the value to be esti-
mated, and to vote in respect of the difference. He is not bound
to wait till after the value has been determined by sale {Ex pa/rte
Jffmn, 1 Bose^s B., 322). The value in such a ease is to be taken
at the market iprice of the day of choice of assignees {Ex parte

Qreenviood, BucKs B., 323). But when once he has elected
to give up his securities he cannot retract, even though the
sale realized more than his debt {Ex parte J)ownes, 18 Ves.,
Jr., B., 290). Nor can he, a^ter he |has obtained the com-
mon ''order for sale of a security, with liberty to prove for
the deficiency, abandon that order and prove for his
elect to
whole debt, retaining his security, though the order had not been
acted on, and he was not aware of liis rights when the order was
obtained {Ex pwrte Davenport, in re Buxton:, 1 Mont, and Dea.
R, 313; Ex parte Spear, 12 Z. T., N. 8., 55). Also where a
creditor had a lien on the property of the bankrupt for his debt,
and proved under the commission, he was held to be concluded by

proving his debt, and voting in the choice of assignees {Ex pa/rte
Solomon, ^ Ql/yn and Jam. B., 25). But a creditor having joint
property of the bankrupts in pledge, and selling the same after the
bankruptcy, may, notwithstanding, prove the remainder of his
debt under the separate estates of the bankrupts, if there is no
other joint property {Ex parte Damexiport, 1 Mont, amd Dea. B.,
313; Ex pa/rte Gallu, 2 Madd.B., 262).
Where goods, in which the bankrupts were jointly interested
with A. B., were pledged to secure the payment of an acceptance
"of the bankrupts, and part of the proceeds' were received by the .
creditor before he applied to prove, it was held that he must '
deduct the amount received before he could prove on the accept-

ance otherwise, if the goods had belonged to A. B. alone {Ex parte
;
Presoott, 4 Dea. and Gh. B., 23). And although it is true that
the court may order proof to be admitted on a valuation instead
of sale, its discretionary power in this particular is not too readily
exercised. Such an application must depend on its special circum-
stances ; among which the general benefit of the creditors, and the
amount of the applicant's debt, are held to be very material.
Therefore, where a creditor, to the amount of £3,021, prayed for
leave to take the goods of the bankrupt' at a valuation of £1,190,
and to pay over any surplus above that sum to the assignees. Lord
88
658 LAW OF PLBD0ES.
Eldon refused, the application, as not disclosing anything to

exempt the case from the general practice. The reason for this
is obvious. Until the impossible to say what the debt
sale, it is
is ; and, also, if there any doubt of the creditor's right to retain

is
the security, he is entitled to a contest, with the rest of his credi-

tors, to sustain his disputed title in a situation of predominant
advantage {Ex pwrte Srmth, m re Harvey, 1 Vea. cmd Beam. E.,
518 ; 8. a, 2 Rose's B., 63).
A creditor having goods in pledge, and wishing to prove for the
difference, so as to vote in the choice of assignees,may, on peti-
tion, obtainan order that a value shall be set upon them according
to the market price of the day of choice, and prove for the difEer-
ence, on undertaking that, if the goods sell for more than the
value so. set, the general body of the creditors shall have the bene-
fit {Ex paHe Greenwood, BucVs R., 323). But the court will
not make such an order where the goods have been delivered, not
as a pledge, but for an undue preference in such a case the cre-
;
ditor will not be permitted to prove for the residue without giving
up the goods {Ex parte Smith, 3 Bro. G. C, 46). But the mere
selling of a pledge by a creditor without fraud does not destroy
his rights to prove for the residue or remainder {Ex parte Gallu,
2 Madd. R., 262, 267), And a creditor who holds goo'ds as a
pledge for his debt and interest, and who, at the assignee's request,
delays the sale for a better market, may apply the proceeds in
reduction of interest accrued, due since the petition {Ex pa/rte

Kensington, 1 Dea. R., 58 S. G. 2, Mont, and Ayr. R., 300).
;
But this rule only applies where there is an express contract, or an

implied one, as was held to be the fact in this last cited case, on
the footing of merchants' accounts. And the agent of a bankrupt
attorney, it seems, may prove for his whole debt, although he
retains securities on which he claims a lien.
If a debtor, by way of collateral security, delivers a bill of
exchange or promissory note to his creditor, without his name
appearing upon the paper, it must be disposed of as a pledge,
and the produce applied to reduce tlie debt, the residue of the
demand only being provable under the commission {Expa/rte
Troughton, 1 Cooke, B. L., 124). But the apparent intention of
the parties makes it either a pledge or a purchase ; as where H.,
a money broker, was in the habit of depositing bills of exchange
with B. & Co., as a security for advances, but he did not indorse
EFFECT OF BANKS UPT LA WS. 659
blie bills, nor were they negotiated ty B. & Co., or ever presented
for payment. One of these bills was for £1,000, accepted by C,

ffho dishonored it, and, sometime afterward, became bankrupt on
the 6th of March, 1824 ; H. also became bankrupt December 12th,
1825, when B. & Co. proved for the balance owing them, accept-
ing this bill as a security, but made no attempt to prove the bill
iinder O.'s commission until January, 1826, when the commission-

ers rejected the proof. It was held that the delivery of the bill
by H. to B. & Co. must be taken to have been by way of pledge,

to secure the amount of the advances then due from H. to B. &
Co., and not with an intention to transfer the property in it ; and
that amount of those advances having been paid, B. & Co.
the
Bould not, under those circumstances, prove the bill under C.'s
jommission {Ex parte Britton, wire Claughton, 3 Dea. and Chit.
B., 35). And it is held that the difference between discount and
ieposit of bills depends on the intention to make an absolute
Sransfer, and not on the mere fact of indorsement, though an
indorsement is prima facie eYidence that the transaction is one

3f discount, unless the object of mere deposit is clearly shown (Mo
oarte Twogood, 19 Ves., Jr., B., 231, 232).

As to the difference between bills deposited as security, and pro-
perty of which the value cannot be ascertained till a sale, it has been
laid that if the creditor is willing to take the bills at their amount, as
hey cannot produce more, the estate cannot be damnified, and his
jroof should be admitted for the difference {Ex parte De Tasted, 1
F««. & Brat. R., 240). And the proof of a creditor who claims to
etain securities, or who has interests inimical to the general ere-
iitors, (for the amount of his debt beyond
ought not to be rejected
he value of his securities) on the ground that he will, by his proof,
)e enabled to elect himself an assignee {Ex parte De Tasted, supra
j
md vide Ex parte Mapley, 1 Joa:. da Walk. B., 423). Nor can his
ilaim be resisted because he has property belonging to the estate in
lis possession. That is held to be only a ground to restrain pay-

aent of the dividends, or to require security from the creditor that
le would give up the property the court should be of opinion
if
hat he had. no right to retain {Ex parte Dobson, 1 Mont. (& Ayr.
it
?., 606 S. C, 4 Dea. da Chit, B.,e9; Ex parte De Tasted, 1 BoWs

;
2-, 324). And where the property pledged is claimed by a third

erson, the pawnee may enter a claim on the proceedings for the
fhole amount till the legal right to the property is determined
660 LAW OF PLEDQES.
(Mb parte Williams, 4 Dea. & Chit. JR., 180). Wliere a chose in
action is assigned, the security, if there be one, must be delivered
over at the time of the assignment, and in assigning debts every-
thing must be done that is equivalent to the delivery of the chat-
tels personal {Jones v. Gibbons, 9 Ves., Jr., E., 407, 410). Thus a
bond, when assigned, must be delivered up to the assignee and ;
virhen a debt is assigned, notice must be given to the debtor or

other party yroOT whom the assignor is to receive the money, even
though a security (as a charter party) has been delivered to the
assignees (JJoyfflZ y. Howies, 1 Ves., Jr., H., 344; S. C, 1 Aik, E.,
ITl ; Gardner v. Laohlan, 8 8i/m. E., 123). And the reason
assigned is, done the assignor would be able to
that until this is
obtain payment of the debt, which is tantamount to having it in

his order and disposition. !Notice of a dissolution of partnership
is not notice to the partnership debtors, unless it can be reasonably
inferred that they have seen it {Eaipa/rte Ushouse, 1 Gl/yn cfc Ja.
E., 358 ; Bean
James, 1 -ZTot. cfc Man. E., 398).
v.
The deposit of a warrant of attorney with a creditor, without

notice to the party who had executed it, was held insufficient to
take it out of the reputed ownership of the depositor, though the
deposit took place through the agency of the solicitor of the
acceptor of the bill of exchange, and who, as swh solicitor, had
attested the warrant of attorney. Nor does it make any difference
that the warrant of attorney was executed to secure a sum pre-
viously secured by a bill of exchange ; for, contrary to the rule as
to restitution in the case of real property, such notice to the solicitor
is not notice to the client. The deposit of a bill of exchange,

though not indorsed (and, a fortiori, when indorsed), is good with-
out notice, and the depositor is entitled after bankruptcy to have it
indorsed, and to the common equitable(|mortgagee's order {Es>
parte Price, 3 Mont. Dea. & Be G. E., 586 and vide ex parte ;
Bennett, 1 Be ' Gex's E., 194).

In one case a bond was executed to secure payment of bills of
exchange. The bond was mortgaged, together with the bills

which were indorsed. The bonds and bills were deposited by way
of sub-pledge, and no notice of the sub-pledge was given to the
obligor. Under these circumstances, it was held that the sub-
pledge was good against the assignees {Ex parte Bennett, 1 Be

Gex's E., 194).
The bare possession of goods intrusted to the bankrupt for a
;
EFFECT OF BANKRUPT LAWS. 661
ymfio fvôse (as' a pledge), without any power given him to
Ispose of them, is not suificient to make it a case of reputed

irnership, unless, indeed,, the owner has been guilty of laches, and
IS thus allowed the bankrupt to gain a false credit (
West v. Skip,
Yes., St., R., 243). But goods sent on sale or return, and kept
adistinguished with the rest of the bankrupt's stock, pass to the
isignees as being in his order and disposition, notwithstanding

lY alleged custom or usage of trade by which goods so deposited
id not lead to the belief that they belonged to the trader {Ex
\a/rte ê&plcmd, m re Qla/pham, 4 L. T., JSF. S., 808).
A deUvery of goods cannot be qualified by any secret under-

anding between the parties so as to defeat the claims of their
3signees {Hol/royd v. Owynne, 2 Tcuu/nt. E., 176). If the removal
ikes place on the very same day when the act of bankruptcy is
ummitted, although in point of time it is prior to the actual com-

lission of it, the rights of the assignees have been held to attach
Arbowm v. Williamis, 1 My. <& Mon. JR., T2). And if a person
rhohas given a bill of sale or instrument remains in possession of
lie goods therein enumerated, the registration of the bill of sale
idll not prevent the goods from passing as goods in the order and
isposition of the bankrupt, with the consent of the owner {Bradger
: Shorn, 2 Ell. (& Ell. E., 472).
There are some modes of pledging property which have been
leld under the British bankrupt laws to be in themselves acts of
lankruptcy ; as, for instance, the assignment of the whole or prin-
ipal part of the bankrupt's property by tfill of sale,even though
nch bill of sale was not executed spontaneously, if it appear that
he provisions of the deed must necessarily have the effect of delay-
ng or defeating creditors, or to render it immediately impossible
or the bankrupt to carry on his business, or whether it was simply
m endeavor to put all his property out of the reach of liability to

)ay {Exjxwte Wensley, 1 Be Oex, Jam. <fe Sm. R., 273
the debt
?. C, 1 De Sm. Bb,nkrwptcy Appecds, 49 ; The Lil-
Oex, Jam.. <&
wne, 12 Z. T. N. 8., 209 Goodricks v. Taylor, 2 Hwl. <& Nor.
;
B., 380; Yovm^ v. Fletcher, 34 L. J. N. S. Ex., 154; 8. C, 11
Tw.N. 8., 449 8. C, 12 Z. T. N. 8., 392 Goodric&s.Y. Taylor,

; ;
I De G., Jam. 8m. E., 135). In the last mentioned case a

<&
nortgage of property by a surety was held bad on the ground that
t was an act of bankruptcy.
Contracts, express or implied (as a general lien), are protected
662 ,
LAW OF PLEDGES.
from the operation of bankruptcy where they are hona fide [Bow-
mcm V. Malcolm, 11 Mees. c& Welsh. B., 844). "Where a creditor
had advanced money on a ship in course of construction, "such
advance to be a charge on the vessel," the creditor's lien was held
not to be destroyed by the debtor's bankruptcy during the building
{Swamston v. Olay, 4 Giff. R., 187). And in another case, where
the owner for of some jewels lent
life them to her daughter, whose
husband became bankrupt, it was held that the mother's lien was
not defeated by the goods being in the order and disposition of the
bankrupt husband {In re Robertson, 10 L. T. N. S., 105). And
where the iona fides of the party advancing money and receiving
a pledge come in question, it is for the jury to judge, from all the
circumstances, what the intentions of the parties were. It has been
held that mere knowledge that the pledgor was in embarrassed
circumstances is not sufBcient ; and by analogy with the cases in
which it has been held that a bona fide execution is defeated by

bankruptcy before the sale, so, in general, a contract to pawn,
though hona fide entered into, would be defeated if notice of the
act of bankruptcy were given before delivery ( Vide White v. £aH-
lett, 9 jBing. B., 378 Vdall v. Walton, 14 Mees. & Welsh, R.,
;
254: S. C, 9 Jti^., 215).

; And where a transaction, prima facie
good, is impeached as wanting in hona fides, the proper direction
seems be that, unless the jury come to the conclusion that the
debtor had the intention of defeating the law and preventing the
due distribution of his assets by preferring one creditor at the
expense of the rest, the transaction stands good in law. The whole
question turns upon the intention of the trader in disposing of his
goods to the particular creditor {Bills v. Smith, 34 Z. J. JV. S. Q.
B. 68 S. a, 12 Jur. N. S., 155 S. C, 12 Z. T.

; S., 22;and K ;
vide Regina v. Mandee, 4 Fos. <& Fin. R., 45 Regma v. Rad- ;
nitz,lh., 165).
As a general principle, the title of the assignees to the bank-
rupt's property dates from the act of bankruptcy ; for though they
have no title till their appointment, yet, when appointed, their
title extends backward, and relates to the act of bankruptcy {Kynr
eston v. Crouch, 14 Mees. <& Welsh. R., 274 Fawcett v. Fecurne, ;
6 Queen^s Bench, R., 20). But

good only where the
this holds
bankruptcy takes place in conquence of some proceedings by credi^
ors for, where there is no petitioning creditor, but the man is
;
declared bankrupt on his own petition, there is no relation {Steven-

;
EFFMCT or BANKS UJPT LA WS. 663
n V. Newnham,, 13 Com. Bench H., 285 ; Nicliolson v. Ooooh^

Ell. & Blade. R., 999 ; Ex ^parte ffarrison, 26 Z. J. W. S.
mk. 30 ; Pa/wll v. Best, 3 Best & Smith! s R., 53T ; cmd vide
oppimg V. Keysell, 16 Com. 5ewcA iT. 8. R., 268 ; <S. C, 10
w. i»^. -I?., 774).
The assignees of a bankrupt have no right to interfere with the
ortgage of the bankrupt's interest, except to redeem. But if
e estate has been mortgaged considerably below its value, the

lurt will allow the assignees to fix a reserved bidding at the sale
^paHe ElUs, 3 Bea. & In this case the mort-

Chit. R., 297).
ige was for £48,000, and the equity of redemption was valued at
63,000. But where policies of insurance, valued at only £500,
ere deposited by way of equitable mortgage with a creditor whose
jbt was £16,000, the court refused a reserved bidding to the
iBignees, for " they have no right to interfere with a mortgage,
ceept to They might, however, have permission to

redeem."
id, but they must abide by their bidding {Ex parte Barnard, 3
'«». & Chit. R., 291). But in one case leave was given to the
isignees to fix such a bidding as the commissioners should approve
^Kfarte Lackvngton, 3 Mont., Bea. & Be Oe. R., 331). And
here an equita;ble mortgagee with leave to bid was the only bidder,
le court opened the biddings on an offer more than twice the
nount he had given, in accordance with the practice of the Court

E Chancery {Em pwrte Lee, Be Gem's R., 628).
In an early case in the English Court of Chancery, Lord Hard-
ioke refused to allow a depositor of stock, in the hands of a bank-
ipt, to prove for interest, saying there is a plain distinction
Btween .debts that carry interest and a special deposit of goods
id stock, for in the former the interest shall be continued down
> the date of the commission, but in the latter the interest stops
om {Bromley v. Child, 1 Atk. R., 259).
the time of the deposit
'
the security be mortgagees cannot prove for
insufficient, the
iterest beyond the date of the adjudication, even though the sale
as postponed at the request of the assignees, and for the benefit
E the bankrupt estate {Ex parte Badg&r, 4 Yes., Jr. R., 165
le Ughtfoot, 18 Z. T. R., 54 Ex parte Baldwin, 33 il., 263).
;
he same doctrine was held by Commissioner Evans on the autho-

ty of a case in wliich, pending an appeal by an equitable mort-
igee, it was agreed between the parties that the property should
8 sold, and the proceeds invested by the assignees to abide the
664 LA W OF PLEDGES.
result of the appeal, which was accordingly done, though the

assignees, against the wish of the mortgagee, deposited the money
in a bank which paid only two and a Jialf per cent interest. The
court held that, though the mortgagee was entitled to the interest
actually made for the investment, he was not entitled to have
interest calculated on his debt subsequent to the date of the first,
for there was no mention of interest in the agreement, and interest
is not allowed in bankruptcy, except in the case of bills and notes,
unless it is provided for in the contract, or unless it arises from the
dealings of the parties constituting an itnplied agreement to pay
interest on the posting of merchants' accounts (
Vide EsspaHe Ken-
smgton, 1 JDea. E., 58 S. C.,% Mont, da Ayr. B., 300).
;
Goods pledged expressly to secure a creditor, who has previ.

ously accepted and paid bills drawn on him by the bankrupt, are
released from further charge as to other bills taken up and paid
subsequently, if the amount of the original sum paid on account
of the bankrupt has been repaid to the creditor, without the
goods being sold {Birdwood v. Baphael, 5 Price's B., 593). So
also where a creditor's right to retain property was disputed on
the ground of preference, the court refused his application to take
it at a reduction, to prove for the difference, and vote in the choice
of assignees {Md parte Barclay, 1 Glyn <& Jameson^ s B., 272).

And the court, also in the exercise of its discretion^ refused to
order the sale of a bond, but allowed the creditor to prove fot his
whole debt, because if it had been sold at the time it would have
produced nothing, though it might afterward become valuable
{Mb parte Smith and StricMand, 2 Glyn tfe James. B., 105).
The foregoing principles and rules are settled by the English
authorities, but thby will generally be recognized as in point,
upon the same subjectj in the American States. The courts of
the United States have laid down similar principles in cases aris-
ing under the federal bankrupt act of 1841 and they are prbba-
;
bly equally pertinent to cases arising under the present law; and
indeed to cases, as a general rule, arising under the insolvent laws
of the severial States.
Bj the second section of the bankrupt act of 1841, it was provided

to the following effect " Nothing in this act contained shall be con-
:
strued to annul, destroy or impair any liens, mortgages or other

securities or properties, real or personal, which may be vklid by
the laws of the States respectively." And by the bankrupt act
EFFECT OF BANKR UPT LA WS. GG.S
now in force, it is provided as follows :

" "Where a creditor has a.
mortgage or pledge of real or personal property of the bankrupt^

or a lien thereon for securing the payment of a debt owing to
him from the bankrupt, he shall be admitted as a creditor only
for the balance of the debt after deducting the value of such pro-
perty, to be ascertained by agreement between him and the-
assignee, or by a sale thereof, to be made in such manner as the

court shall direct ; or th6 creditor may release or convey his claim
to the a,ssignee upon such property, and be admitted to prove his-
debt" {U. S. Bankrupt Act o/1867, §20).
Upon this point, Mr. Justice Story, who gave the prevailing-
opinion of the Supreme Court of the United States, in a case
, arising under the act of 1841, said " Where creditors are spoken
:
'of '
who claim a debt or demand under the bankruptcy,' we-
imderstand the meaning to be that they are creditors of the bank-
rupt, and that their debts constitute present subsisting claims upon
the bankrupt's estate, unextinguished in fact or in law, and capa-
ble of being asserted under the baiikruptcy in any manner and
form which the creditors might elect, whether they have a security
by way of pledge or mortgage therefor or not. If they have a
pledge or mortgage therefor, they may apply to the court to have
the same sold, and the proceeids thereof applied toward the pay-
ment of their debts ^wtanto, and to prove the residue; or, on
the other hand, the assignees may contest their claims ill the courtj.
or seek to ascertain the true amount thereof, and have the residue
of the property, after satisfying their claims, applied for the bene-
fit of the other creditors" {Me parte Christie, 3 How. JJ. S. R.,
292, 315).
It is laid down by a writer on bankruptcy, that " if a creditor
has a security or lien, he is not compellable to come in under the
commission ; he may elect to stand out, and rely on his security or
lien. * * * But if he does prove, he relinquiês his security
for the benefit of all" {GuUen on Bankruptcy, 145, 149). And
this doctrine is in accordance with the general terms of the Eng-
lish authorities hereinbefore cited ; and the only difference between
this doctrine and the rule adopted in this country is, that the
assignee of the bankrupt may contest the rigtit of the pledgee,
and the court has the entire control of the subject, which in reality
is not much different from the English rule.
A case came before the United States Circuit Court, under the
'
84
666 LAW OF PLEVOES.
bankrupt act of 1841, in which it appeared that A. and B., being

engaged, in 1839, in the manufacture of cutlery, borrowed of C,
a sum of money payable in four years, with Interest semi-annu-
ally, and on the same day gave him a -deed of all the machinery
in their manufactory, with all the tools and implements of every
kind thereunto belonging and appertaining, together with all the

tools and machinery for the use of the said manufactory which
they might at any time purchase for four years from that date,
and also all the stock which they might manufacture or purchase
during the said four years. On the 26th of August, 1842, A. and
B. filed their petition to be declared bankrupts, and subsequently
were so declared, and an assignee appointed. On July 16th, 1842,
for breach of the conditions of the mortgage, the agent of C. took
posses'sion of the property, including the machinery, etc., which
were in the possession of the factory when the mortgage was
made, and also machinery, tools and stock in trade which
had been made and purchased after the execution of the
mortgage. On petition of the assignee in bankruptcy of A. and
B. for an order of court authorizing him to take possession, it was
held by the court, 1st. That the mortgage and the possession taken
on July 16, 1842, constituted such a lien in favor of the mortgagee
to the property acquired subsequently to the time of executing the
mortgage as was protected under the provision in the second sec-
tion of the bankrupt act. 2d. That such stipulations in a mortgage,

in regard to property subsequently acquired, protected such pro-
perty from other creditors of the mortgage {Mitchell v. Winslow, 2
Story's H., 630). And the same court held in another case that
where property was attached upon mesne process, and after judg-
ment was obtained, the defendant filed his petition to be decreed
a bankrupt, the right of the attaching creditor had attached
absolutely to the property, and by the law of Massachusetts
remained a fixed' and permanent lien for thirty days after the judg-
ment, by means of which the creditor at his election might obtain
a preference of satisfaction out of the property attached over aU
other creditors (In the matter of Cook, 2 Story's R., 376).
The Supreme Judicial Court of Massachusetts decided that
where a creditor attaches his debtor's property on mesne process
and seizes the same on execution within thirty days after he
recovers judgment, he has a lien or security on the property, which
cannot be annulled, destroyed or impaired by his debtor being
EFFECT OF BANKRUPT LAWS. 667
declared a bankrupt under the United States bankrupt act of

1841, on a petition filed aftersuch seizure of the property, though
before the time when by law it could be sold on execution {Ames
V. Wentworth, 5 Met. R., 294).
Under the bankrupt law of 1841, it has been decided by the
Supreme Court of the United States that the District Court, when
sitting in bankruptcy, had jurisdiction over liens and mortgages
existingupon the property of bankrupts, so as to inquire into their

validity and extent', and grant the same relief which the State
courts might or ought to grant. The control of the District Court
over proceedings in the State cdurts upon such liens was held to be
Mt over the State courts themselves, but upon the parties, through
an injunction or other appropriate proceeding in equity {Ex parte
Christy, 3 Hi)w. U. 8. B., 293 ; and vide Mo parte Foster, 2
Story's H., 131). And the provisions of the bankrupt act now in
force in this regard are substantially the same as those of the act
of 1841.
Of course, a pledge or other security given in fraud of the bank-
rupt act cannot be sustained, and this question may always be
raised in the court having cognizance of the bankruptcy proceed-
ings ( Vide Bolamder v. Oetz, 36 Cal. E., 105).

The courts of Maryland have held that in an action by a trustee
in insolvency for the conversion of the insolvent's property, evi-
dence by the defendant to prove that before the insolvent's appli-
cation for the benefit of the insolvent law the property alleged to
be converted was delivered by the insolvent to the defendant and
held by him as security for the insolvent's indebtedness to him, is
admissible. In other words, the law is such that a honafide pledge

made by a debtor, before proceedings have been initiated in behalf
of the debtor for the benefit of the insolvent laws, will be sus-
tained, and in such a case probably the right of the pledgee would
be declared to be similar to that of a pledgee umder the Federal
bankrupt laws {Dowler v. Cuslvma, 27 Md. B., 354).
The Superior Court of the city of New York has held that a
mortgage upon a bankrupt's real estate is not such an adverse claim
as requires an action to be brought by the assignee in bankruptcy
under the eighth section of the United States bankrupt law now
in force, nor will the foreclosure of the mortgage and the sale of
the property in a suit to which the assignee is not a party consti-
tute such an adverse claim where it does not appear that the
668 ,
LAW OF PLUBGES.
assignee had notice that the purchaser claimed adversely to his

own title. This is an important decision, and will apply in prin-
ciple as well to the case of a pledge of personal: property, as to
that of a mortgage of real estate {Price v. PMUips, 3 Boh. B.,
448).
A case to the following effect came lately before the Supreme
Judicial Court of Massachusetts. A maker of a promissory note,
executed to an indorser a mortgage, which was recorded, the condi-
tions of the instrument being to secure the indorser and not to pay
the note. The maker failed, and the indorser also, after his lia-
bility was fixed.The court held that an indorsee of the note who
proves it against the estate of the indorser, and votes for his dis-
charge, is not entitled to have the mortgage assigned to him upon
his withdrawing his claim. It seems, however, from tlie decision,
that the indorser could claim such assignment if he had not proved
{Wew Bedford InsUl/atwn, for Savings v.
the note in insolvency
Fom" Hamen Bank, 9 Alienee B., 1Y5). The same court, how-
ever, had previously held that a creditor of an insolvent manufac-
turing corporation, who holds collateral security from a stoohhold^
therein, may prove hiswhole debt against the corporation in insol-
vency without first applying the security in payment, or surrender-
ing it to the assignees {Cabot Bank v. Bodman, 11 Graffs B., 135).
The cases are very numerous in the State reports in respect to
this pointunder the State insolvent laws, but it is not compatible
with the plan of this work to go into a general or special examina-
tion of them, and perhaps the foregoing is all that is necessary to
be said upon the subject.
CHAPTER LI.
EFFECT OF THE DEATH OF THE PAETIE8 TO A PLEDGE MEACfS OF —

DETERMINING THE PAKTT ENTTILED TO THE PEOPEETT PLEDGED
IN DOUBTFUL OASES SOME MISCBLLAlJEOtrS POINTS IN EESPBOT
TO PLEDGES EEFEEEED TO.
The effect which the death of one or both of the parties to a

pledge produces upon the subject of the pledge, may be inferred
from some of the statements hereinbefore made ; but it is well to
dwell a little upon the point in this place.
THE DEATB OF THE PARTIES. 669
It was some old English cases, tliat where goods are
said, in
pawned generally, without any day of redemption, and the pawnor

dies, the pawn is absolute and irredeemable but that if the pa/wn'ee
;
dies it is not so. In an early case, it was said that though the
person that takes the pawn delivers it over to a stranger, yet if the
pawnee dies the tender of the money must be to his executor, and
not to the stranger ; for the delivery makes but the naked custody
of it ; and if the delivery had been on consideration it does not
alter the case, for the stranger is not privy to the first contract of
pawning nor to the condition {RatcUffY. Dcmis, Gro. Jac., 244,
S. C, Yel/o. R., 178). JVIore recent decisions in England, however,
show that the right to redeem is not lost by the death of the
pawnor, but goes to his personal representatives. For example,
where A. borrowed £200 on pawn of some jewels and plate,
worth about £600, ta,king a note from the pawnee, and afterward
borrowed, at several times, three other sums of money of the
pawnee, for which he gave his note, without referring to the
jewels, the court permitted, the executors to redeem, but only
on payment of the money due on
the notes as well as on the
pawn {BemOMd/ray v. Metcalf, Pre. Ch., 419). And in another case,
in the English Court of Chancery, the executrix of a deceased
.pawnor was allowed to redeem securities pledged with the defend-

ants, the testator's bankers ( Yanderzee v. Willis, 3 Brown^s G.
G., 21).
It may therefore be taken by the English authori-

as well settled,
ties, that the personal representative may
sue on the contract of
pawn, as on all other contracts made with the deceased, of which
the breach occasions an injury to the personal estate, whether
broken in his lifetime or subsequently to his death ( Vide Webb v_
Qowddl, 14 Mees. am.d Welsh. R., 820). And, in like manner,
the personal representatives are liable, as far as they have assets, on
the contract of pawn as on other contracts of the deceased broken
in his lifetime {JMorgcm v. Ramey, 6 Hurl, and Nor. R., 26o>
276). And, indeed, the personal representatives are in like man-
ner liable, on such contracts of the deceased as are broken after
Ms death, for the performance of which his skill or taste was not
required, and which were not to be performed by the deceased in
person ; for the executors, as was said by Parke, B., in a case
before the Court of Exchequer, are in truth contained in the per-
son of the testator, with respect to all his contracts, except such
.
670 LAW OF PLEDGES.

as depend on personal skill ( Wills v. Murray, 4 Exchequer H.,
866 and vide Broom's Legal Maaoims, Aih ed., 870, 872, 874).
;
The doctrine of the English courts upon this subject is recog-

nized in all its effect by th§ American courts. This is abundantly-
apparent from authorities in a previous chapter referred to. lu
accordance with this doctrine, an action of trover was permitted by
the Supreme Court of Illinois in favor of the pledgor against a
party holding a promissory note under the administratrix of the
deceased pledgee to recover said note {Henry v. Edd/y, 34 lU. R.y
608). And the rights of the personal representatives of a pledgor,
were recognized without apparent question by the
in such a case,
Supreme Judicial Court of Massachusetts, where it was decided
that the pledgee held the property pledged as a collateral security
after, thesame as before, the death of the pledgor {Middlesex Bamk
v. Minoty 4 Met. B., 325). And in other cases it has been
expressly held by the American courts that there is no time fixed
for redeeming a pledge the pawnor may redeem at any time and
; ;
that the right of redemption survives, on his death, to his legal

representatives, against the pawnee and his representatives ( Vide
Cwtelyou v. Lamsing, 2 Gaines' Cases in Error, 200).
It has been stated in a previous chapter that, uplon the pay-
ment of the debt, or discharge of the obligation to recover which
a pledge made, the pledgee is bound to return the thing pledged
is
to the pledgor or other person entitled to the same ; and it was

added that the pledgee must be careful to deliver the same to the
proper person for if he should deliver the same to a wrong person
;
he would, nevertheless, be liable to respond iii damages to the true

owner. Now, while it is of the utmost importance that the sub-
ject of the pledge be delivered to the proper person, it is not
always easy for the pledgee to determine who the proper person
is ; and it frequently happens that the property pledged is claimed
by several adverse claimants. In such a case, it is but just that
the pledgee should have some means of resort to ascertain,
judicially, to whom the pledge should be delivered without

involving himself in a bill of costs; and the law has provided
the remedy, which isby a proceeding known as an interpleader.

An interpleader will be sustained where it is necessary for the
protection of a person from whom several persons claim, legally or
equitably, the same thing, debt or duty, but who has incurred no
independent liability to any of them, and does not himself claim
^ '
THE ACTION OF INTESPLJEADME. 671

an interest in the matter. A bill of interpleader, strictly so called,
is where the complainant claims no relief against either of the
defendants, but only asks that he may be at liberty to pay the
money or deliver the property to the one to whom it, of right,
belongs, and be thereafter protected from the claims of both
{Bedell v. Hoffman, 2 Paigeâ B., 199). And the allegations in
every bill of interpleader should be That two or more persons
: 1.
have preferred a claim against the plaintiff. 2. That they claim

the same thing. 3. That the complainant has no beneficial interest
in the thing claimed and, 4. That he cannot determine, without

;
hazard to himself, to which of the two or more defendants the thing

of right belongs {Atkinson v. Mwriks, 1 Cow. R., 691, 703). And
the party bringing the action must be ignorant of the rights of
the respective parties (Wilson v. Dimocm, 11 Abb. Pr. P., 3;
BellY. Hunt, 3 Parb. Oh. P., 391; Showy. O&ster, 8 Paige's P.
339). Therefore, the action cannot be maintained where the plain-
tiff is prepared to deny the liability to either of the defendants
{MoHenry v. Hazard, 45 Barb. P., 657). A party deposited

money in a bank and soon after transferred his interest to another.
A receiver of the property of the depositor claimed the deposit,
and the one to whom it had been transferred brought an action
against the bank therefor. The Supreme Court of the State of
New York, at Special Term, held that, on payment of the money
into court, the receiver should be substituted as defendant, in place
of the bank. The bank held the money for the true owner, and
had no interest in the question to whom it Under such
belonged.
circumstances the court thought that it would be obviously unjust
to compel the defendant, against its own will, to remain a defend-
ant in the action, and, perhaps, become liable for the costs of the
litigation {Fktoher v. Troy Samtigs Panic, 4 How. Pr. P., 383).
And where money was deposited with a party to be paid on cer-

tain conditions, and an action was brought against the bailee of a
third party, the Court of Appeals of the State of New York
decided that the proper way for the bailee to protect himself and
the one who was entitled to the money was by obtaining an order
of substitution under section 122 of the Code of Procedure.
{McKay v. Drajper, 27 N. y.i?., 256). But this is under a spe-

cial 'provision of the New York Code, which has provided a con-
current remedy with the action of interpleader, which is mad®

available .after action has been commenced.
672 LAW OF PLEDois.
They have a similar practice in England, where it is provided

l)y statute that parties may have relief, under certain circumstan-
ces, as in a procedure by interpleader. And it has been decided
that where a defeindant is held in msuTnpsityd&tii, detinue or trover
for a matter in which he does not claim any interest, and also in
cases of cross claims on the same' subject-matter, parties may take
the benefit of the statute as to procedure in interpleader {Farr v.
Ward, 2 Mees. dt Welsh. R., 844). But it has been held that the
•court cannot give relief under this act to stockholders who are
•only threatened with proceedings. In such a case an action must
be brought and the plaintiff declare before the court can interfere.
Still the stockholder, acting in good faith, is entitled to his costs
irom the party ultimately unsuccessful {ParTcer v. Zimiett, 2
J)owl. a., 562).
Again, it has been, held that the English act does not apply
•where the defendant has, by his own act, incurred a personal
{Hbrtonv. Earl of D&oon,
liability in, respect to the subject-matter
H Bow. Low. R., 206; S. C, 4 Exchequer R., 497). And the

<&
courts of If ew York have held substantially in the same way and ;
the. courts of New York, as well as the English courts, have

ideelared that the action of ijiterpleader cannot be maintained
•where the plaintiff has rendered himself liable to two suits by his
own act {Morgam, v. Fillmwre, 18 AUb. Pr. J^., 217 ; Wnited. States
-v. Yiei&r, 16 ih., 153; and vide Desbrough v. Harris, 31 Eng.
Jmw amd Eg. R., 592, 595 ; Gra/rvsley v. Thornton, 1 Sim. R-,
391 ; Oljgnn v. Locke^% Dru. e& Wa^Ks R., il JBelchsrY. Smith,
;
S Bim^. R,, 82). And both the New York and the English courts
have lield tltat the action cannot be maintained, even where the
plaantiff has incurred a personal liability to either of the contend-
ing parties i(J^c6^raw v. Adorns, 14Mow: Pr. R., 461 Shaw ; v.
€osteir^ 8 Paige's R., 339; Patomi v. Campbell, 12 Mees. cf'
Welsh.. R., ^7Tj.

Indeed, the New York courts hold that the provision of tlieiv
Cede j&i Procedure, for the substitution of parties, is founded o
tlê English statute ; and thcideeisions under that seem to have sei-
itled the rale ^tfcit it is only where no other question than the right of
jpmperiy is to be litigated, that an interpleader can be allowed
{Sherman w. Partridge, 1 Ahi. Pr. R., 256 ; S. C, 11 Row. Pr.
R., 154).
Tlie Englifik ©ourts have held that th§ir act does not apply where
THE ACTION OF INTEBPLEASER. 673
3 declaration contained a count in case, as well as in trover
awrence^. Mathews, 5 Dowl. R., 149). JSTorto claims set up

eonsequeBce of proceedings in equity {Stit^gess v. Claude, 1
Old. R., 505). Nor where the defendant has identified himself
til the claimant by taking an indemnity from him (Tncker v.
orris, 1 B&wl. R., 639). Nor where A. has given a promissory
te to B. and B. has deposited it with C, who brings an action
lOO it, is it any grouncj for obtaining relief under the act that an
tion is anticipated at the suit of the creditor {Newton v. Moody,
Dml. R; 582).
But where two plaintiffs each claimed to be the lawful owner of
e note, an interpleader issiie was ordered {Regan v. Serle, 9 Dov)l.
., 193). And it would seem that where the defendant's claim is
the nature of a lien or pawn, he may interplead as to all but

e value of his lien or claim to the property {Rest v. H&yes, 3
98. ds Finl. R., 113 ; S. C, 32 L. J., M. S. Ex., 129). It has
len declared in England, however, that the act is seldom useful
pawn transactions, inasmuch as the general rule is, that it will
rt apply where the defendant claims amy interest in the subject-
atter of the suit {Lvndsay v. Bofrron, 6 Com. Bench R., 291;
'raddock v. Smith, 2 Bimg. R., 84).
On execution in a county court in England, against the goods
'
a defendant in a suit of A. against B., goods in the hands of 0.

ere seized, C. paid money to release them, and proceeded by
terpleader. The goods originally belonged to B., but previous
the executionhad been pawned with a pawnbroker (it did not
)pear by whom), and the duplicate had been deposited in the
mds of C, byL., to redeem them, and hold them as security for
le money advanced, and L. redeemed accordingly. There was
3 show the time at which or the circumstances under
evidence to
Met L. became possessed of the duplicate, or that he had any
iterest therein. The court held that C. was entitled to the money
lid to release the goods {Furlh&r Y.Sturmy, 5 Jur. If. 8., 45 ex).
; may be affirmed, on the whole, in opposition to the view before

Epressed, that the principle of interpleader may be quite useful
I many pledge ( Vide Cody v. Potter, 55 Barb. R., 463).
cases of
here are some other points settled by authorities, in respect to
ledges, independent of statutory provision, which might have
3en noted under.previous heads, had the authorities been observed
: the proper time. These points will now be noted without par-
85
'
674 IiAW OF PLEDGES.
ticular regard to the order in which the decisions are referred to.
The courts of New Jersey have held that, where coupon honds
of a corporation are deposited as collateral to secure notes on ,
short time, it is presumed, in the absence of all special agree-

ment, that they are not deposited as choses in action, to be col-
lected by the pledgee, but as a pledge, to be sold after demand and
notice, as in the case of a pledge of any article having a market
value {Morris Cwnal, etc., Compamy v. Lewis, 1 Beas. R., 323).
The courts of Kentucky have held that the deposit of bills of
lading for cotton with a bank, without assignment or other writing,
and without actual delivery of the cotton, is a sufficient transfer
to pledge the cotton to the bank as security for the payment of
money advanced by the bank upon the faith of the security so
given, and that the lien acquired by the bank is paramount to a
subsequent attachment lien {Petitt v. First, etc., Bcmk, 4 Bush's
a., 334). But in the State of Californiaj where it appeared.that

a chose in action was assigned and delivered as collateral security
for the payment of a debt due the assignee, the Supreme Court
.
held that the assignment and delivery to the assignee of the chose
in action was necessary to give the latter full authority to readily
control the security and make it available. But it was decided
that this did not necessarily constitute the transaction a chattel
mortgage, as distinguished from a pledge, and that, under the cir-
cumstances, the transaction was a pledge. It was further held in
the case that the pledgee, of a chose in action pledged as security

for the payment of a debt, is not authorized to sell the pledge
without calling on the pledgor to redeem, and giving him reasonar
ble notice of his intention to sell ; ordinarily, the chose in action
could not be sold by the pledgee, but must be collected {Gay v.
Moss, 34 Gal. R., 125).

In a late case in the English Court of Common Pleas it
appeared that A. was indorsee of a bill of lading, drawn in a set

of three, of cotton, which had been lately landed, under an entry
by A., at a sufferance wharf, with a stop therein for freight, which
rendered it liable to the captain's lien for freight under 11 and 12
Vict., ch. 18, §4. On March
A. obtained from M. an
4th,
advance on the deposit of two copies of the bill, M. assuming the
third to be in the master's hands on March 6th, the stop for
;
freight being then removed, A. obtained from B. an advance on
the deposit of the third copv of the bill which A. had fraud n-
MISCELLANEOUS POINTS 675
lently obtained. On March llth, B. knowing of M.'s prior

advance, sent his copy of the bill to the wharf, and had the cot-
ton transferred into his own name, and afterward sold it and
received the proceeds. The court held that the bill of lading,
when deposited with M., retained its full force, though the cotton
had been landed and warehoused ; that there was a valid pledge
of the cotton to M., and he could sue B. either for conversion of
the cotton or for the proceeds of the sale.
The case was taken to the Exchequer Chamber, and the judg-
ment of the Common Pleas was affirmed, and the foregoing views
reiterated {Meyersicdn v. Ba/rber, 2 Law R., 661 2 Com. Bench ;
B.; 38).
A ease of considerable interest was recently decided by the
Supreme Court of Indiana, which involved principles in relation
to the subject of pledges. The
was this A., being indebted
case :
to the Crescent City Bank, assigned,by an instrument in writing,

to B., who was cashier of the bank, five hundred shares of the
stock of the bank in trust, for the purpose of securing the debt.
B. was not described in the writing as cashier, nor did he sign it •
as such. It was stipulated in the writing that, in case of a failure

to pay the debt in*installments, at specified dates, B. might sell
the stock after giving twenty days' public notice. To a writ by

C, to whom A. had. sold the stock, subject to the payment of the
debt to the bank, alleging a tender of the amount of the debt,
and a refusal to transfer the stock to him, it was answered that,
upon a pay one installment of the debt, B., after giving

failure' to
the notice required, had sold the stock to the bank. The court
held that the assignment of the stock was not to the bank, but to
B,, personally, and not as cashier, and the sale to the bank was
consequently valid. Gregory, C. J., dissented, but the decision

of the court was as here stated {Crescent CityBanh v. Cwpjpentev.,
'iloInd.R., 108).
Taking a bill of sale of personal property at a price less than its
estimated value, with an agreement that the original owner shall

have the same again at any time after a fixed day, upon refunding
the price, with a small additional sum for. trouble in trying to sell
the same, was held, by the Supreme Judicial Court

of Massachu--
setts, to amount only to a pledge, which is lost by giving possession
of the property to the general owner {Kiniball v. Hildretji, 8
Allen^s B; 167 ; and iiide Walker y, Staples, 5 ii., 34),

;
676 JjAW of pledges.
The Superior Court of the city of Kew Tork, sortie time since,
decided that a mortgage of real property (with the bond to which
it is collateral) is the subject of a pledge. Mortgages are now
regarded as mere securities and chattel interests^ and may be
pledged like other chattels and things in action (Oampbdl v. Far-
her, 9 Bom. E., 322).
A city) in the State of Indiana, pledged its stock in a railroad
company as security for its bonds, issued in aid of the road ; and
the bonds provided that the holders might exchange the same for
a like amount of the stock, and be substituted as stockholders in
the place of the city. The Supreme Court of the State held that
the bondholders had a lien upon the whole stock, but that one
bond could not bind more than one share of stock {Aurora v. Cobb,
21 Irvd. R., 492).
The Supreme Court of Louisiana has held that, in order to
create a pledge, it is necessary not only that delivery should accom-
pany the private deed, but also that the instrument should exhibit
the nature and extern uf the reciprocal rights and obligations of
the contracting parties. And the same case holds that the assign-
ment of a warehouse receipt, in the absence of an express stipula-
tion that the property is given in pledge to secure the payment
of a principal obligation, the amount of which is specified, does
not confer a privilege upon the transferee {^Martin v. Creditors,
15 La. An. R., 165).

By an act of the British parliament a penalty is imposed upon
any person who shall detain the certificate of a vessel's registry,
called the merchants' shipping act, and passed iii 1864 (17 and
18 Vict, ch. 104). The Court Bench has recently
of Queen's
decided that the effect of this act is to make any pledge of the
certificate, for any purpose whatever, though for a good considera-
tion, illegal and void; and, consequently, any detainer of the

certificate, so pledged, illegal. And it was held that when the
person entitled to the custody of the certificate for the purposes
of navigation is also the owner of the ship, he has a right of action
against the party so detaining the certificate, in addition to his
remedy former character, by a complaint before a justice
in the
and this, though he be himself the pledgor, and for a good con-
sideration. But the court questioned, whether an action at law
would lie, by the party merely entitled to the custody, for the
detainer, mîde unlawful by the penal enactment and its seems;
MISCELLANEOUS POINTS. G77
that, if it would, the declaration should, in that case, aver absence

of reasonable cause (
Wiley v. Grcmford, 1 Ellis, Best cmd SmitKs
ff., 253, 265).
It is oftentimes quite difficult to determine whether a given
transaction is a pledge or otherwise. The following was held by
the Supreme Court of Wisconsin not to be a pledge. A. gave his
note, to which was annexed the following " Having deposited
:
with B. (the payee) school-land certificates, numbers, &c., with

authority to sell the same, on non-payment of this note, at either
public or private sale, and apply the proceeds herein without fur-
ther notice." Xê certificates were assigned in blank, and, on
maturity, and nonrpayment of the note, were sold to the highest
bidder for a small sum, less than the amount of the note, which
was credited thereon. B. afterward assigned the note to C, who
recovered judgment thereon against A., which remained unsatis-
fied. A. sued B. ior the conversion of the certificates. It was
held that the transaction was not a- pledge of the certificates, and
that A.'s interest in the land and certificates could not be extin-
guished or converted by a sale, as in the case of chattels ; but

that it was an equitable mortgage of A.'s estate in the land, upon
which B., upon default in payment of the note, could take
^vasatageonly by a suit in equity for establishment of his lien,
and for sale, if A. njeglected to pay principal and costs by a giyen

day Qbmry v. Wood, 12 Wis. B., 413).
A resent decision made by the Supreme Court of the State of
New York inyolves the question as to wh9,t constitutes a pledge..
The employed a brokpr to procure a loan for him upon
pjaintiff
ste^k, Xhe broker applied to the defendant, who refused to make

a loan. After informing the plaintiff of such refi^sftl, the broker
went a second time to the defendant, who then
would Ivysaid he
ths stpck. The plaintiff being told by the broker that the only
way he could gpt the money was to sell the stock, said he would
sell it. The broker and the plaintiff then went to the defend-
ant's office and made a sale .of the stock to him, and a bill
of sale was executed and the money paid. It was then agreed
that if the plaintiff brought the money back in ten days the
defendant would return the stock. The court held that the trans-
action did not constitute a pledge, and that an action woidd not
lie against the defendant to recover damages for a conversion of

the stock, pjthough the amount of the loan was offered to the
.678 LAW OF PLEDGES.
defendant on the morning of the eleventh day after it was made but ;
it was neither repaid nor tendered within the ten days. The eourl
also held that if the transaction was & pledge, the defendant was
entitled to interest on the loan, unless the agreement was that he
would accept the principal without interest, if tendered within the
time and that the tender of the principal, after the day, without
;
offering to pay the interest which had accrued after the day, was
insufficient. But it was expressly declared that the transaction
was either a conditional sale or a mortgage; and that in neither
case could trover be maintained, for a failure to return the property,
upon a tender being made after the day limited for payment.
Brady, J., dissented, and expressed the opinion that the stock
was deposited in a way which constituted the transaction a pledge
only and not a mortgage and that the offer of the plaintiff to pay
;
the amount of the loan, on the morning after it became due, was
sufficient to justify the action, unless the defendant had, at that
time, lawfully sold the stock, which it was for him to show. But
the opinion of the majority of the judges was adverse to this
view, and the judgment was in favor of the defendant { Woodworth
V. Morris, 56 Barl. E., 37).
An important case has, quite lately, been disposed of by the
Commission of Appeals of the State of New Tork, not yet reported,
involving the question of pledges. The action was brought to
recover the value of a cargo of com shipped from Chicago to
Buffalo and thence to New Tork by V., consigned to the defend-
ant. At Chicago Y. made his bill of exchange for $3,500 at
sight, directed to defendants at New York. The plaintiff dis-
counted the bill for Y. upon his transferring and delivering, as
surety therefor, a bill of lading of the com. The defendant

received the corn but refused to pay the biU, although notified of
the transfer to the plaintiff before receiving the corn. The defend-
ant claimed to hold the corn for a balance due them from Y., and
that a draft for $1,220, paid by them for Y., should be deducted
from the amount of recovery as money advanced to purchase the
corn.
The court held that the transfer of the bill of lading to the
plaintiff, under the circumstances, transferred also the title to the
corn therein described, conditioned upon the acceptance of the
draft. Upon such acceptance the title would pass to the acceptor;
but upon refusal to accept, the plaintiff's title continued unimpaired^
MISCELLANEOUS POINTS. 679
and the defendant was liable to the plaintiff for the money advanced
npon the security of the bill of lading. And was declared that,
it
where the eotisignor is indebted to the consignee for advances, and

has agreed to give him a prior security upon the property, the lien
of the latter is good as against the former ; but that the consignee
does not thereby obtain any right to the property, as against a
Imafide pledge for vialue of the bill of lading made prior- to the
delivery of the property to the consignee {Marine Bamik of GKir
oago V. Wright, 6 Alhamy L. J., 241).
The Superior Court of the city of New York has held that the
cashier of a bank having the general charge and management of
the business of the bank, by permission of the directors has the

authority to transfer to another bank, as security for a loan, notes
and drafts discounted by the bank ; and that the bank to whom
such transfer is made has the right to collect such notes and bills,
and the acceptors and indorsors cannot set up the defense of want
of title. And
was further decided, that if the loan was made in
it
good faith to the bank, the right of recovery on the notes and
drafts is not affected by the fact that the. cashier gave his indi-
vidual note, payable- to himself as cashier, for the amount of the

loan ; and that the fact that the cashier misapplies the money so
loaned to his own private purposes will not invalidate the contract,
nor prevent the lending bank from collecting the securities {City
'Bmh V. i Bosw. R., 420).
FerJeins,
Under an arrangement between the Bank of Pennsylvania and
certain other city banks, the bank delivered to them notes and
bills of exchange -to about the sum of $800,000 as collateral secu-

rity, on condition that the other banks should advance to the Bank
of Pennsylvania $600,000 by redeeming its notes. The Supreme
Court of the State of Pennsylvania held that this transaction was
a pledge, and that the arrangement was not equivalent to an assign-
ment for the benefit of creditors under the act of 1818, and was
not, therefore, void because unrecorded {Griffin v. Rogers, 38
Bemrh. R., 382).
The Supreme Court of Michigan has held that a writing given

hy a debter to his surety, providing that, on the failure of the debtor
to pay -within thirty days, the said surety might take immediate
possession of the goods, etc., in possession of the debtor in the
store and premises occupied by him, and out of the same sell so
much as would pay the debt and a reasonable compensation for his
680 i^H^ OF PLEDGES.
services and redeliver the balance to the debtor, is not a pledge,

because no possession was given with it ; that it is a mere naked
power, not coupled with any present interest, and cannot operate
to give the surety any rights in the property itself until reduced
to possession. And, therefore, it was held that the lien of an
attachment, levied before possession taken under such instrument,
must prevail over it {BoJ/mes v. Hall, 8 Mich. JS., 66).
The Supreme Judicial Court of Massachusetts has held that one
who has signed a note at the request of another, and received
shares in a corporation as security, may bring an action on an agree-
ment of the person at whose request the note is signed " to pay
said note, and receive said shares in case the payee fail so to do,"
without offering to transfer the shares to that person {Tai/lor v.
Cheever, 6 Gray's B., 146).

The Supreme Court of Pennsylvania has held that a chose,
which is transferred as collateral security, is put under the dominion
of the creditor to make his claim out of it, and is notj in the nature
or subject to the incidents of a pawn or pledge {Chamherabwg
Im. Co. V. Smdth, 11 Pemn- B., 120).
The Supreme Court of Indiana has beld that the holder of nego-
tiable notes as collateral security for the debt of the payee is a
holder for value, and may recover thereon against the maker,
although he has paid the note to the payee without notice of the
indorsement. But in such case he will be entitled to recover only
the amount for which he holds the note as collateral security
(Valette v. Mason, 1 Smith's R., 89). And the same court held,
where a judgment debtor deposited with the judgment creditor's
attorney certain claims as securityj taking receipts therefor, in which
the attorney engaged to apply so much of the profieeds as he should
be able to collect to the payment ot the judgment in a suH in
chancery by the debtor, that he was not entitled to a credit for
said claims until they were collected, imless they had been lost or
had remained uncollected through the creditor's negligenoe. The
court held, also, that had the receipts purported to have been for
actual payments, an allegation in the answer that they were for
claims deposited as security, etc., would have required proof {Riser
V.RuMidk, 8 BUcT^. R., 382).
The courts have often held that a bill of sale, absolute on its face,
may be shown to have been intended as a mortgage or a pledge
by other writings and acts of th.e parties, and even by parol evi-
:
MISCELLANEOUS POINTS. 681
denee, and shall, therefore, be so deemed and treated. In such

ease, if the goods are delivered into the possession of the creditor,
it will be regarded as a pledge, otherwise a mortgage
(
Vide Dahunei^
V. Har. dt MoH&n. R., 101 Ross y. Iforvell, 1 Wash.
Qrem,, 4 ;
^,,14; Brogden Y.Walker, ^ Ha/r. <& John. R., 285; Reed r.

Jewell, 5 Greeid. R., 97 Walker y. Staples, 5 Attends R.j 34).
;
The Supreme Court of Maine decided at an early day that the

pyee of a n€gotiable note, who has indorsed it in blank and
deliyered it in pledge to another as collateral security for his own
debt, may still negotiate it to a third person, who may maintain
an action on it, in his own name as indorsee, if the pawnee's liea
be discharged before judgment {Fisher v. Bradford, 1 Qreenl.
R., 28).
A case decided by the English Court of Common Pleas, in 1862,
involves some interesting questions in respect to a pledge, and is
worth noting. The case was this The plaintiff, Martin, being
:
iadebted to one Bowers in the sum of forty pounds, entered into

an agreement with him, whereby he agreed that Bowers should
bave his horse, van, cart and two sets of harness "for what he
owed him " and by the memorandum it was further agreed that
;
Bowers should keep the articles mentioned until the plaintiff paid
him the forty pounds ; and the niemorandum concluded thus
" The said Bowers has received into his possession said horse, van,
cart, and two sets of harness, this 24th December, 1860."
Bowers received into his actual possession the horse and van,
and one set of harness ; but, having no place to put them in, he
left the cart and the other set of harness with the plaintiff,
vrith an understanding that he was to take them whenever he

pleased. Bowers having become insolvent, the plaintiff got, back
the horse, van and set of harness; but Bowers' assignee seized the
whole of the things mentioned in the memorandum, and caused
them to be sold by the defendant, an auctioneer. The court held,
that trial, that there had
being the only qjiestion raised at the
been a sufficient delivery of the goods toBowers to vest the pro-
perty in him, subject to the right of the pawnor to redeem and ;
that, consequently, the plaintiff was not entitled to recover.
Although this was the result of the case, several questions of

importance were passed upon and settled by the court in respect
to the contract of pledge, not shown by the points, involved ir
the flnal result.
86
682 LAW 01 PLEDGES.
Erie, 0. J., in his opinion, said :

" The effect of this arrange-
ment was, that the goods were handed to Bowers as a pledge.
Bowers stood in the position of a pawnee. Now, I take the law to
be that, to constitute a valid pledge, there must be a delivery of
the article, either actual or constructive, to the pawnee and inas- ;
much as the memorandum purported to assign the property to

Bowers, and as the horse and cart remained in the stable of Mar-
tin, the question is whether there has been a valid pledge here.
The evidence on was that Bowers, having no stable,
this point
requested Martin to allow the cart and harness to remain in his.
In the written agreement the articles are stated to be in the pos-
session of Bowers. Possession is an equivocal term; it may
mean either actual, manual mere right of pos-
possession, or the
session. The question is whether, as between these parties, the
words used constitute the premises of Martin the premises of Bow-
ers for this purpose. I am clearly of opinion that the intention
of the parties will be carried out by holding them to be so. It
has, over and over again, been decided that the words of an agree-
ment are to have effect according to the mind and intention of the
parties. Thus, a delivery of goods in satisfaction of a debt has
.
been held to amount to payment {See Ca/rman v. Wood, 2 M. and

W., 465). So, where goods have been purchased and left in the
possession of the vendor, for a special purpose of the vendee,
it has been held to amount to a delivery {Êlmore v. Stone, 1 Tamit.,
488). So, where a horse was sold, but left in the stable of the
seller, being only removed to another stall, that was held to
amount, between the buyer and the seller, to a delivery. And
as
in many instances the warehouse of the vendor has been held to
be the warehouse of the purchaser, in order to carry out the inten-
tion of the parties. I therefore think there was, in this case, a
sufficient delivery of those articles to the pawnee."
The other three judges who sat in the case concurred in the
opinion of the chief justice. Willes, J., incidently declared that
it had been held that the debt may be taken into consideration in
mitigation of damages in an action for converting the pledge ; that
is to where the pledgee illegally disposes of the pledge, or
say,
otherwise converts it, in an action against him by the pledgor, the
pledgor can only recover the value of the pledge, less the debt for
which was held in security.
it
The question whether the pawnee may sell the pledge, where
;
MISCELLANMOUS POINTS. 683
10 day has been flêd for the payment of the sum for which the
ihattel is impignorated, was touched upon, but not definitely
lecided. Willes, J., said " As to the right of the pawnee to sell
:
he pledge, whenever that question comes to be decided, it will be

lecessary to refer to the civil law as stated in Mackeldey's Systema
Turis Eomani, title Pledgee, from which, probably, Mr. Smith,
pho was well acquainted with the Koman laws, drew what is
tated in the note referred to, and for the application of which to
he laws of England the case of Pothonier v. Dawson, Holt, 383,

3 an authority. It may be, on examination, that Mr. Smith is
ight. I do not mean to express any opinion but I think it right ;
say thus much'^ {Ma/rtin v. Peid, 11 Com. Bench P., N. S.,

30; S. a, 103 Eng. G. P.P., 730).
In Pothonier v. Dawson, referred to, it was laid down by
libbs, 0. J., thait if goods are deposited as a security for a loan
f money, such deposit constitutes more than the right of Uen
nd it is to be inferred that the contrrct between the parties is
hat, if the borrower do not repay the advance, the lender shall be
,t liberty to reimburse himself by the sale of the deposit.
In the n'otes to Coggs v. Bernard {\ SmitKs Leading Cases,
th ed., 171), it is said :
" A. pawn differs, on the one hand, from a
Im, which conveys no right to sell whatever, but only a right to
etain until which the lien was created, has
the debt, in respect of
een satisfied and, on the other hand, from a mortgage, which
;
onveys the entire property of the thing mortgaged to the mort-

agee conditionally, so that when the condition is broken the
roperty remains absolutely in the mortgagee. Whereas,, a pawn
ever conveys the general property to the pawnee, but only a
peeial property in the thing pawned ; and the effect of a default
1 payment of the debt by the pawnor is not to vest the entire
roperty of the thing ,
pledged in the pawnee, but to give him a
ower to dispose of it, accounting for the surplus ; which power,
'
he neglect to use, the- general property of the thing pawned con-
nues in the pawnor, who has a right at any time to redeem it."
!ut these questions have all been discussed in the proper pla<5e,
id need not be dwelt upon here.
It may not be amiss in this chapter to make a brief reference
» a case lately decided by the Supreme Court of Indiana, in vol v
ig the contract of pledge, which contained special provisions,
he doctrine of the case is thus expressed : Where a person, being
684 LAW OF PLEBGhES.
indebted to another on account, deposited with the latter as col-

such indebtedness a note and a mortgage to
lateral security for
secure the same, executed to the pledgor by a third person, the
deposit being made upon the express condition that said note and
mortgage should not be sued upon or foreclosed until every legal
effort to collect said indebtedness bad been made by th? pledgee,
who also agreed to return the note and mortgage upon payment
of said indebtedness ; in a suit on said note by the pledgee against
the maker, the pledgor being made a defendant to answer as to
his allied assignment by delivery, an answer setting forth these
facts,and alleging that the pledgor at the time of paid deposit,
and ever since, had owned property sufficient to pay said indebt-
edness, and out of which the same might have been made, bu*
that no effort had ever been made to collect said indebtedness,
presented a good defense for all the defendants {Bwrr v. Kane,
32 Ind, M. ; and vide 3 JJh<my Lma Jaurnal, 216).
And it may be added that where securities are pledged
by a
debtor, to his creditor, as collateral security for a specific debt, the
creditor in an action against him for the conversion of the securiT
ties cannot set off his general demand against the plaintiff {fiome
V. Ba£iey, 47 Bml. B., 39S).
CHAPTEE m.
STATDTOET PEOVISIONS IN BESPEOT TO THE SUBJECT OE PAWNS OE
PLEDGES THE ENGLISH PAWNBEOKBEs' ACT LAWS OF NEW
TOEK EELATING TO PLEDGES AND THE BUStNESS OF PAWKBEOKING.
The most of the rules a.nd principles applicable to pledges or

pawns, which have been considered in the previous chapters, are
those which are settled by the common law, unaffected by legis-
lative enactment. There are some instances where the common
law has been re-enacted or modified by the legielatupe of the State,
and it is proposed to note these instances in this chapter.
And in the first place it may not be amiss to refer to soiaflfi
points which have been settled under the pawnbrokers' act of

England, being the 39 and 40 Geo. Ill, ch. 99. By the second
section of this act it" is provided that all persons exercising the
trade of a pawnbroker shall be entitled to charge interest at cer-
STATUTES RELATING TO PLEDGES. 685
tain rates (specifying the same), and that such interest shall be
paid, in addition to the principal, before the pawnbroker shall be
obliged to re-deliver the pawn. So loag as the usury laws were
in force in the kingdom, no person was allowed to charge a higher
rate of interest than five per cent, unless specially authorized by
statute. But these laws have been repealed, and now, in contracts
generally, where both parties act henafide and without fraud, any
rate of interest may be recovered for which the parties stipulate.
It iias been decided, hoXvever, that pawnbrokers, as such, are not

entitled to the benefit of the repeal of these usury laws, but that
tkej must still regulate their charges for interest according to the
pawnbrokers' act. But when not acting as pawnbrokers, they are
not bonnd by the restrictions of the act ; they must be acting as
pawnbrokers, in order to come under the regulations of the act
{PenneU v. Attenborough, 4 'Queen's Bench E., 868 ; /& C, 5 Bv/rn's
Jus£ee, 474).
Oonneeted with the right to charge interest, by pawnbrokers,
are certain liabilities which, on account of the decisions under the
aet, may properly be noticed. The fourth section of the act makes
it imperative on pawnbrokers to give farthings in change, in all
cases where the sum payable on redemption, either as interest or
part principal and part interest, " shall amount to a total sum of
which the piece of money of the lowest denomination shall be one
farthing;" and also in cases where the person desirous to
redeem cannot produce a farthing, but tenders a halfpenny. In
the latter case, the pawnbroker must either produce a farthing in
change, or wholly abate the farthing from his demand. And the
fifth section provides that where the application to redeem is
made within seven days of the expiration of the first calendar
month from the time of making the pledge, the pawnor may
redeem without paying any interest for those seven daiys ; if the
application is made after seven but not after fourteen days, interest
shall be charged for a month and a half; but after fowteen days,,
thepawnbroker may charge interest for the whole of the second
month and the like regulations shall apply to every subsequent
;
calendar month wherein application shaU be made for redeeming

goods pawned.
Upon the construction of these clauses of the act, it has been
decided that where the interest payable under the act to a pawn-
broker, on a loan for a month, is a sum which is not am exact num
686 LAW OF PLUS ens.
her of farthings, the pawnbroker, even if entitled to receive one

penny per month on account of the necessity of the case, is not at
liberty, on a loan for a longer period, to treat the contract as a
monthly contract, taking upon each month the benefit of the
fraction of a farthing, where there would no longer be any diffi-
culty in paying him at the exact rate of twenty per cent {Regina
V. Qoodburn, 8 Adolph. <& Ml. R., 608 ; ^. G., 3 Nm. d Per. R.,
468).
In the case of Regvim Goodiurn, the transaction was one
v.
in which the loan was four shillings. The monthly interest was
four-fifths of a penny, or one penny for one month. The pledge
Tvas redeemed in eleven months and a half, and the defendant
<;laimed eleven and a halfpence.But the court held that he had
no right to make monthly rests in this manner, and that the
"Utmost he could claim was nine and one-fourth pence. It was
made a question in the case, but not decided, whether, where the
•exact sum due to the pawnbroker for interest would involve a
fractional part of a farthing, be is, or is not, entitled to the far-
thing.On this point it may be stated, however, that the Court of
Common Pleas has held that a poor-rate was not overseer ,
entitled to collect more than was and Willes, J.,

actually due;
•cited Baxter v. Faula/m ( Wilson's R., 129), as an authority for
Jiolding that where an amount comes to something less than any

known cQin, a ratepayer cannot be called upon to pay it {Morton
V. Bramner, 8 Com. Bench R., N. S., 791).
The courts have declared that the intention of the statute was
mot merely to grant to the pawnbroking trade a dispensation from
tlie usury laws, where they existed, and that therefore its effect
-was to render the taking of a higher rate of interest than that

£xed by the statute an offense cognizable by a justice of the
3)eace on summary information. Hence it follows that, as no pen-
alty is given by the second or third sections, taking a larger sum
than the act permits is an offense which comes under the general
powers given by the twenty -sixth section for punishing those who
" in anywise offend," where no particular forfeiture or penalty is
elsewhere provided or imposed.
Lord Ellenborough, C. J., observed :
" It is prohibited by the
act to takemore than the stipulated rate of profit and therefore
;
the taking more is an offense against the act ; and as no particular

penalty is provided for that transgression, it falls withiu the
STATUTES RMLATINO Tfl PLEDGES. 687
general words of the twenty-sixth clause" {The Kinq y. Bea/rd,

12 East's R, 633).
On the principle which renders Void all contracts in which the
parties mutually agree that one of them shall do an act contrary
to the express provisions of a public statute, it has been decided
that if a pawnbroker upon one contract advance more than ten
pounds, and pretend to divide the same as if there were several
dilferent loans, and for that purpose give several tickets dated on
different days, it is for the jury to say whether the transaction i&
a mere contrivance to conceal usury, and if they so whole
find, the
is illegal and void {Cowie v. Harris, 1 MoodyMaUcirHs E.,

c6
141). The judgment in this case did not proceed on any matter
peculiar to the trade, but on the general rule of the common law,
ex dolo malo non oritur actio. That judgment was
is to say, the
based upon principles laid down in a case decided some years ago
by the Supreme Court of the United States, in which it wis
declared that " the object of all law is to repress vice and to pro-
mote the general welfare of society, and it does not give its assist-
ance to a person to enforce a demand originating in his breach or
violation of its principles and enactments. Contracts in violation
of statutes are void,and they are so whether the consideration to
be performed, or the act to be done, be a violation of the statute
or not " {Harris v. Hitnnals, 12 JBbw. U. S. R., 83).
In an action of trover for certain watches which came before

the English Court of Exchequer, the plea was that the defendant
was a pawnbroker, and that the goods were deposited for money
advanced, which bad not been repaid. Keplication, that, before
they were so pledged, it was corruptly agreed that the defendant
Bhould lend the plaintiffs a sum exceeding ten pounds, to w;t,
seventy-seven pounds, and that the defendant should forbear and give
day' of payment thereof to the plaintiff vrntil the expiration of the
year next after such loan afid adwwncement, that plaintiff should give
more than lawful interest, * * * whereby the agreement was
wholly void. was proved at the trial that the watches were
It
deposited, but that no agreement was made as to the time they
should remain in pledge. On application the judge amended the
record by inserting, after " such loan," the words redeemable in the
meantime. The plaintiff had a verdict, and on motion to enter
a nonsuit the court held that tliis was a contract within the pawn-
brokers' act ; and that it was to be assumed, from the circumstances
688 LAW OF PLEDGES.
that tlie plaintiff had dealt with the defendant m the dha/racter of
and upon the usual terms of dealing with a pawnbroker (Nichis-
son V. Trotter, 3 Mees. db WeM>. E., 30).
Another case, hereinbefore referred to upon another point, went
off on the same prinoijAe. In that case the defendant, a pawn-
broker, had advanced £200 to a trader on a deposit of silks, and
had entered the transaction in his books as several advances, each
of less than ten pounds. The trader became bankrupt his ;
assignees sued the defendan'fr in trover, and obtained a verdict.

Tindal, 0. J., ^ho tried the cause, directed the jury to find whether
the goods had been deposited on a contract to pay more than five
per cent interest. They found the question in the affirmative, and
the plaintiff, consequently, had a verdict. On motion for a new
trial, Park, J., referred to the case of Cowie v. Ha/rris (1 Mood. &
Malk. R., and citing Lord Tenterden's ruling in that case,
141),
said that it was a question for the jury whether the whole were
really one transaction and a mere contrivance for obtaining the
higher interest on the whole sum, in which case it was void, or
whether the advances were really distinct. The court unanimously
held the ruling to be right, and refused to disturb the verdict
{Tregoning v. Attenborough, 7 Sing. M., 97). And in a case in
the Court of Chancery of England, it was said by Cottenham, Lord
Chancellor, that " there is a fraud in advancing money at different
times," referring, doubtless, to loans under peculiar circumstances,
like those in the case in 7 Bingham {Fitch v. Rochfort, 1 Hall
cfe TwelU R., 255; S. C, 1 Mao. <& Gord. R., 184; S. C, 13
Jur., 351).
The practical effect of the statutory restrictions on a pawnbro-
ker's profits has, however, been greatly narrowed by the doctrine
hereinbefore referred to, that they only affect him when dealing in
his business as a pawnbroker. This was authoritatively settled in
the case referred to where the assignees of a bankrupt sued to

recover different articles which the bankrupt bad pledged wij;h the
defendant, a pawnbroker. One such transaction took place on
April 8th, 1841, and an entry had been made in a book belonging
to the defendant (but not kept according to the requirements of
the pawnbrokers' act) to the following effect : To be held by him
as a security for £115 this day lent, with interest thereon from the
date hereof, at the rate of fifteen per cent per annum until pay-
ment ; and in default of payment on the 18th of October then
STATUTES BELATIN^' TO PLEDGES. 689
text, I do hereby authorize the said E. Attenboroagh to sell and
[ispose of such articles, either by public sale or private contract,
ind to repay himself thereout." The defendant had made no

mtry of this transaction, as required by the statute, nor did he give
he bankrupt any duplicate ; and the question raised was, whether
le was acting as a pawnbroker when he advanced the money. The
lourt by the statute 39 and 40 Geo. Ill, ch. 99, sec. 2,
considered that
he pawnbroker was allowed to take twenty per cent on goods
)awned, but it did not mention any case where the sum should be
hove ten pounds, apparently assuiriing that no sum above that
imount Would ever be borrowed of a pawnbroker. Looking at
i and 3 Yict., clT. 37, the court considered that usurious loans of
his d^seriptibn were lawful, as the statute 39 and 40 Geo. Ill, ch-
19, only applied to loans not exceeding ten pounds. Judgment
.ccordingly was for the defendant {Pennell v. Atteniorough, 4
2'ueen's Bench H., 868 S. C, 5 Burn's Justice, 474).
;
To the same effect is the decision of the Court of Chancery,

tiade some years later than the case of Pennell y. Atteniorough,
md which has been before referred to. The Yice-Chancellor of

ilngland had granted, an injunction restraining the defendant from
elling jewelry deposited with him as security for £1,383. The
ffoperty had been pledged by the plaintiff, a married woman, and
he plaintiff having paid all interest due up to a certain time,
igned several contract notes setting, forth the terms of the deposit,
nd duplicate copies of such contracts were given to her by the
iefendant. These contracts stipulated for interest at the rate of
hreepence per one pound sterling per month. Such interest,
fter tlie first month, to be calealated half-monthly, with power to
he defendant to sell twelve months after date, and to account for
urplus or claim for deficiency, as the case might be, if demanded'
pithin three years ; in fact, embodying in this contract nearly all
he special conditions peculiar to a transaction under the Pawn-
irokers' Act. The amount mentioned in each contract was above
en pounds; and the contention wais that the transaction was an
rdinary pawnbroking contract, and, therefore, void. But Lord
/ottenham, on appeal, reversed the vice-chancellor's decision, and
iSsolved the injunction without calling on the appellant's counsel
a reply. His lordship held that pawnbrokers were under no disa-
iHties, except that they were bound by the act if they advanced
ams under ten pounds. Therefore, transactions aibove ten pounds
87
690 L-AW OF PLEDGES.
were to be looked at just as if the Pawnbrokers' Act did not exist

at all. The 2 and 3 Vict., ch. 37, provides that, as to all loans
under ten pounds, pawnbrokers shall be confined to their own
act; and as the repeal of the usury laws had left every one
free, with respect to loans above ten pounds, and there was
nothing in the act to incapacitate pawnbrokers, the act 39 and
•lo Geo. Ill, ch. 99, ha,d nothing whatever to do with the
transaction, which was just as binding as if the pawnee were not

a pawnbroker. A pawnbroker, like every one else, may avail
himself of the provisions of 2 and 3 Vict., ch. 37, for the purpose
of obtaining a higher rate of interest than five per cent ; and a
contract for that purpose, made upon the deposit of goods, will
not be invalid merely because it contains stipulations usual in an
ordinary pawnbroking transaction {Fitch v. Bochfort, 13 Jur.,
351 a, 1 Mac. and Qord. R., 184 S. C, 1 Hall and TwelW
; 8. ;
£., 255 and vide, also, Turquamd v. Mosedon, 7 Mees. amd

;
Welsh B., 504).

So generally is the doctrine laid down by Lord Cottenham now
recognized and acted upon, that the pawnbrokers of England in
large business constantly make-, advances, both above and below
£10; the only practical difierence being that they do not give
duplicates for goods pledged for sums above the limit fixed by
statute. It appears, however, that by the act abolishing the Eng-
lish usury laws, it is expressly provided that the rates of interest
allowed by law to be taken by pawnbrokers are to remain unaf-
fected by the repeal (2 and 3 Vict., ch. 37, § 3 ; 17 and 18 Vict,
ch. 90, § 4). V f .
As a question of practice, it has been decided that where an
endeavor is made to avoid a pawnbroking contract, on the ground

that it is forbidden by the statute, it is not sufficient to aver that
it was made "corruptly and against the form of the statute

agreed, etc." The illegality must be stated with certainty and ;
if it depends on a particular statute, that statute must be pleaded
{Twrquam.d \. Mosedon, supra.)

The courts hold that the duplicate or declaration given to the
pawnor, under the pawnbrokers' act, must generally be produced
when the pawnor applies to redeem the goods but when goods ;
have been stolen, or otherwise unlawfully obtained, and then

pawned, the pawnbroker has no right to insist upoa the produc-
tioq of the duplicate, nor is the real owner bound to produce it
STATUTES RELATING TO FLEDGES. 691
{f>eet V. Baxter, 1 8ta/rk. B., 472 ; Packer v. GilUes, 2 Gamp. B.,

336).
As most of the American States have laws in respect to the
business of pawnhroking, some of which are, douhtless, similar to
the English pawnbrokers' act, these points decided under the
provisions of the latter act may be nsefnl for reference in this
country,and applicable to cases arising here. In the State of If ew
York there seems to be one general enactment in respect to pawn-
brokers and property pledged with pawnbrokers ; and there have
been special laws passed relating to pledges or pawns, which are
still in force.
« In 1817 an act was passed concerning Indians residing within
this State, which makes it unlawful for any white person, under
any pretense, or on any account whatever, to receive from any
Indian, residing on any tract of land belonging to or occupied by
the Mohekonnic or Stockbridge Indians, or on the reservation lands
of the Oneida or Brothertown Indians, any article or articles
whatsoever, by way of pawn or pledge and provides that every
;
person who shaU receive such pawn or pledge shall forfeit the sum
of twenty-five dollars, to be recovered in an action of debt, in the
name of the Indian from whom he shall have received such pawn
or pledge, in any court having cognizance thereof, with costs. And
that every such pledge or pawn, or the value thereof, shall also be
recoverable, with costs, by the Indian from whom the same shall
have been received, in an action of replevin or trover {Laws of
1817; oh. 143 ; 4 Stat, at La/rge, 359).
By an act of the legislature, passed in 1847, it is provided that
any person who shall receive from any Indian of the Seneca nation,
either absolutely in payment or exchange, or in pawn or pledge,
for the payment in whole or in part for any spirituous liquor or
intoxicating drink, sold or delivered, or to be sold or delivered to
such Indian, or toany other Indian of the said nation, any blanket,
Tearing apparel, implement or other goods or chattels,. shall for-
feit ten times the value of the article so received, to be sued for
and recovered with costs by the attorney of the said Seneca nation
and in their and the amount recovered and collected shall
name ;
be paid over for the benefit of the said Seneca nation and any ;
Indian of the said Seneca nation is declared to be a competent

witness to prove the receipt of such goods or chattels, or the sale
or gift of £i,ny intoxicating drink to any Indian of the said nation.
;
692 LAW oil PLEJ)&]^S.
And it is further provided that any article or property sold,

exchanged, or pawned or pledged as aforesaid, for spirituous
liquor or any intoxicating drink, may be reclaimed and recovered,
by the Indian so selling or pledging the same, from the person to
whom the same shall have been sold or pledged,, or from any other
person to whom the same may have been delivered, assigned, sold
or transferred and for the recovery of the same such Indian may
;
maintain an action in any court having cognizance thereof; and in

case such action shall not be brought or commenced within twenty
days from the sale or pledge of such article or property, then it is
made lawful for the peacemakers of the reservation to which such
Indian belonged, if any such peacemakers shall be chosen accord*
ing to the provisions of the act, to demand, sue for and recover
the article or property so sold or pledged, in any court having
cognizance thereof, in and by their name of office in which action ;
the Indian who made such sale or pledge is made a competent

witness for the plaintiffs {Lmos of 1845, ch. 150, § 4; 4 Stat, at
Lwrge, 378).
In 1849, the legislature of the State passed another act for the
benefit of Indians, by which the provisions of the act of 1845,
relative to pawns or pledges made by Indians for liquor, were
extended to any and all Indians residing within the State, irrespec-
tive of the tribe {Lam o/1849, ch. 420, § 2 4 Stat, at Large, 392),
;
And by an act previously passed in 1813, it. was enacted that no

pawn taken of any Indian within the State, for any spirituous
liquor, shallbe retained by the person to whom such pawn shall
be delivered but the thing so pawned may be sued for and
;
recovered, with costs of suit, by the Indian who may have deposited,
the same, before any court having cognizance thereof {Laws of
1813, ch. 29 ; 4 Stat, at Large, 342).
By the the act of the legislature passed in April, 1842, to extend
the exemption of household furniture and working tools from
distress for rent and sale, under execution, it is provided that
every assignment, sale or pledge of articles which are exempt by
law from execution, and every levy or sale of such articles or pro-
perty by virtue of an execution, by consent of the defendant
where the consideration, or any part thereof^
therein, shall be void,
for which such assignment, sale or pledge was made, or for the
debt on which judgment was rendered in any court, and on which
puch execution Was issued, was for the sale of intoxicating liquors
and in any fttJtion eominenced for the recovery oi the value of the
property sold as aforesaid, the person for whose benefit such sale
or transferwas made may be called and examined as a witness as to
the fact of the sale of intoxicating liquors somade, in the same
manner and subject to the same penalties as if called in any other
case {Laws 0/184:2, ch. 157, § 3 4 Stat, at Large, 626, 627).
;
In respect to the business of pawnbroking in the State, it is

enacted that no person shall carry on the business of a pawn-
broker, by receiving goods in pledge for loans at any rate of
iaferest above that allowed by law, except in those cities where by
their charters the corporations have the power of licensing such
pawnbrokers. A violation of this provision of the statute is
deemed to be a misdemeanor.
The statute further provides that whenever any person shall
make oath, before any justice of the peace, police justice or assistant
justice, that any property belonging to him has been embezzled or
taken without his consent, and that he has reason to believe and
suspect, and does suspect, that such property has been pledged with
any pawnbroker, such justice, if satisfied of the correctness of
such suspicions, shall issue his warrant, directed to any constable
of the city or place, commanding him to search for the property
so alleged to have been embezzled or taken, and to seize and bring
the same before such justice. And the constable to whom any
such warrant shall be directed and delivered is declared to have
the same power to execute the same, and he must proceed in the
same manner, as in the case of a search warrant issued upon a
charge of larceny.
It is further provided by the statute that, upon any property so
seized by virtue of such warrant being brought before the magis-
trate who issued the same, he shall cause such property to be
delivered to the person so claiming to be the owner thereof, on
whose application the warrant was issued, on his executing a bond
as specified by the statute ; and if such bond be not executed
witliin twenty-four hours, the justice is required to cause the pro-
perty to be delivered to the person from whose possession it was
taken. The bond is required to be in a penal sum equal to
double the value of the property claimed, with such surety as the
justice shall approve, to the person from whose possession the-
property was taken, with a condition that the person so claiming

the same will on demand pay all damages that shall be recovered
694 IÂW OF PLEDGES.
against him in any suit to be brought within thirty days from the
date of such bond, by the pawnbroker from whose possession the
said property was taken (1 E. S., paH 1, ch. 20, iit. 19, art. 3, §§ 9-
13 ; 1 Sjtat. at Zarge, 659, 660).
These seem to be all of the statutes of a general nature, or of a
general application in the State, now in force relating to pledges
or pawns, pawnbrokers, or the business of pawnbroking ; but in
several of the larger cities, like New York, Brooklyn, Albany, etc.,
the charters contain provisions for the licensing ot pawnbrokers,
in which cases the business of pawnbroking is usually regulated
by the ordinances of the municipal corporation.
CHAPTEE Lin.
STATUTORY PEOVISIONS IN EESPECT TO THE SUBJECT OF PAWNS OB

PLEDGES LAWS OF THE NEW ENGLAND STATES UPON THE SUB-
JECT DECISIONS OF THE COURTS UNDEE THE STATUTES.
In the State of Maine, pawnbrokers are to be licensed by the

municipal ofiBcers of the towns, and must be persons of good moral
character, and their licenses must be renewed yearly, and they are
subject to a penalty not exceeding $100 for doing business without
a license.
Every pawnbroker is required to keep a book, in which he must
enter the date, duration, amount and rate of interest of every loan
made by him, an accurate account and description of the property
pawned, jand the name and residence of the pawnor, and, at the
same time,; deliver to said pawnor a written memorandum signed
by himr containing the substance of the entry, and, at all reason-
able times", submit said book to the inspection of any officer
authorized to grant the license and for every violation of this
;
provision he will forfeit twenty dollars.

No pawnbroker in the State must, directly or indirectly, receive
any rate of interest greater than twenty-five per cent a year on a
loan not exceeding twenty-five dollars, nor more than six per cent
on a larger loan made upon property pawned, under a penalty of
$100 for each offense.
'Na pawnbroker can legally sell any property pawned until it
has remained in his possession three months after the expiration
;;;
of the time for which it was pawned. And all such sales are
required to be at public auction by a licensed auctioneer ; and
after notipe of the time and place of sale, the name of the auc-
tioneer and a description of the property to be sold are published
in a newspaper in the town where the property is pawned, if any
and, if not, posted in two public places therein at least two weeks
before the sale. And all sales, otherwise made, are declared void
and the pawnbroker undertaking to make the same will forfeic
twenty dollars for every offense.
After deducting from the proceeds of any sale the amount of
the loan, the interest then due and the proportional part of the
expenses .of the sale, the pawnbroker is required to pay the balance
to the person entitled to redeem such property, if no sale had been
made and if not so paid on demand, he will forfeit double the

;
amount so retained one-half to the pawnor and the other half to

;
the use of the State {Rev. Stat, of 1871, ch. 35, §§ 1-5).
The Supreme Court of Maine has held that if one pledges, as
collateral, a demand on which interest is accruing at stated periods,
some of which occur before his debt so secured becomes due, such
pledge necessarily implies authority to the pledgee to collect and
receive the interest as it becomes payable, and hold on the same
it
terms as the demand itself, especially if the collateral be a bond

with interest coupons attached, which the pledgor does not cut off
before the bond is pledged {And/roscoggin R. M. Co. y. Auburn
Bcmk, 48 Maine R., 335).
A case came before the Supreme Court several years ago, in
which it appeared that the principal debtor in a promissory note
conveyed to his surety certain timber, by writings in these terms
" In consideration that D. has become my surety to W. for $3,000,
I hereby assign to him all the timber," etc. The surety also bor-
rowed money of the same lender ; and afterward, by indorsement,
assigned all his interest in that instrument to O., whom he subse-
quently directed to apply the proceeds of the timber, first, to the
last mentioned debt of his own, and the balance to the debt of
$3,000 due from his own assignor. The court held that the con-
veyance to D. was not absolute, but a pledge and trust to pay
the debt for which he had become surety, and that he had no right
to appropriate the procieeds to his own debt ( Ware v. Otis, 8 Maine
S; 387).
;
696 LAW OF PLEDGES.
These authorities do not involve the constnaction of any of the

provisions of the statute? of the State upon the subject of pledges
but they are, nevertheless, of interest, as giving a construction to
the particular transactions which came before the court for adjudi-
cation.
By the statutes of New Hampshire, no mortgagee of personal
property is or pledge any such property by him
permitted to sell
mortgaged, without the consent of the mortgagor in writing upon

the mortgage, and on the margin of the record thereof, in the oflSce
where it is record,ed, upon pain of being fined double the value of

the property pledged {Gen. Stat., 1867, ch. 123, §§ 13, 15).
It is also provided by statute that, where no time is limited for
the payment of the d.ebt secured by a pledge or redemption of
the property pledged, the pledgee may sell the same, or so much
thereof as is needful, at auction, notice of the sale being given by
posting notice thereof in two or more public places in the town
where such property is situated, and if the value of the property
exceeds $100, by publishing notice thereof three weeks at least
before the sale. A notice of such sale is also req[uired to be served
on the pledgor or general owner, if resident of the county, the
same number of days before the sale, stating in writing the time
and place of sale, the property to be sold, and the amount of the
lien thereon. The balance of the proceeds of the sale, if any, after
payment of the amount of the pledge and the reasonable expenses
incident to such sale, is required to be paid to the pledgor on
demand {Gen. Stat., 1867, ck. 125, §§ 3-7).
Personal property pledged in New Hampshire may be attached
or taken on execution against the pledgor, the attaching officer or
execution creditor paying or tendering to the pledgee the amount
of his claim "on the property {Gen. Stat., 1867, ch. 205, § 17; ch.
217, §3).
A case came before the Siipreme Court of the State, in which it
appeared that two tables which were in a shed attached to the

defendant's store were pledged by the owner to the plaintiff, both
parties to the pledge being present. The plaintiff moved one of
the tables nearer to the other. Tlie parties then left the shed
without notifying the defendant. The defendant afterward con-
verted the tables to his own use. The court held that the plain-
tiff's possession was sufficient as against the defendant {Tiibets v
Ilanders, 18 If. H. R., 290).
The Supreme Court Las lield that a pledgee of chattek sum-

moned as a trustee is entitled to a fair compensation for expenses
attending the keeping, and has a lien therefor against the creditor
as well as the pledgor {Bills y. &mAth., 28 N. H. R., 36©). And

the same court has held that a pledgee of personal property is
answerable in a trustee process only for the balance which remains

in his liands after satisfying his legal and. equitable claims. And
it was further held that the power to sell a pledge is not affected
by a trustee suit {Ghoupmam, v. Gale, 32 N. M. R., 141).
The Supreme Court has also held that the payee of a negotiable
promissory note, secured by a pledge, may transfer the pledge with
the note, and will not be liable in trover for a subsequent conver-
sion by the assignee (C'os* Emerson, 23 N. R. R., 38; and vide
v.
Green, v. Qrahcmi, 46 Bailey v. Colby, 34 ih., 35).

*&., 169 ;
And it was also decided by the same court that a pledge is not
released by conjmitting the body of the debtor to prison upon an
tasecution for the debt {Morse, y. Woods, 5 N. H. R., 297). And
the same court has also declared, in opposition to the general rule
upon the subject, that where one of several joint insolvent debtors
pledges to the creditor the note, of an insolvent person, as collateral
security without any restriction, the creditor has an implied
authority to release the maker upon his paying a part .of the sxim
due on the note {Eceter BamJc v. Gordon, 8 JSf. H. R., 66, 82).
In the State of Vermont the only statutory provision found,
upon the subject of pledges, is the one which declares that personal
property, held by any person as pledgeCj may be attached and
levied upon as the property of the pledgor, subject to the riglit,
title and interest of such pledgee {Gen. Stat., 1870, tit. 15, ch. 33,
§31).
In the State of ]!4iassa.chusetts the mayor and _aldermen, oi
selectmen of any city or town,which has adopted by-laws therefor,

may license suitable persons, to carry on the business of pawn-
brokers within their respective cities and towns. The license
must designate the place where the business is to be carried on^
contain such conditions and restrictions as may be prescribed by
such by-laws, and will continue in force one year, unless soonei
revoked; and any person carrying on such business without being
licensed is subject to a. penalty of fifty dollars for each oifense
{Gen. Stat, oh. 88^ §§ 28-30).
It is provided, by the statutes of Massachusetts that personal
88
698 iÂW OF PLEDGES.
property of a debtor that is subject to a pledge, and of which the

debtor has the right of redemption, may be attached and held as
if it were unincuinbered, provided that the attaching dreditor pays

or tenders to the pawnee the amount for which the property is so
liable within demanded. And it is
ten days after the same is
made the duty of the pledgee, when demanding payment of the

money due to him, to state, in writing, a just and true account of
the debt or demand for which the property is- liable to him, and
deliver it to the attaching creditor or officer. If the same is not
paid or tendered to him within ten days thereafter, the attachment
willbe dissolved, and the property must be restored to him and ;
the attaching creditor will, moreover, be liable to him for any
damages he has sustained by the attachment {Gen. Stat., ch. 123,

§§ 62, 63).
The statute further provides that the holder of personal pro-
perty, in pledge for the payment of money or the performance of
any other thing, may, after failure to pay- or perform, give written
notice to the pledgor that he intends to enforce payment or per-
formance by a sale of the pledge ; which notice miist be served,
and, together with an affidavit of service, be recorded in the
town where the pledgor resides, in the
clerk's office of the city or
same manner, and with the like effect, as provided for notices of
foreclosure of mortgage. And 'if the money to be paid, or other
thing to be done, is riot paid or performed, or tender thereof made,
within sixty days after the notice is so recorded, the pledgee may
sell the pledge at public auction, and apply the proceeds to the
and the expenses of the notice
satisfaction of the debt or "demand,
and and any surplus must be paid to the party entitled
sale;
thereto on demand. These provisions of the statute, however, do
not authorize the pledgee to dispose of the pledge contrary to the
terms of the contract under which it is held, nor limit his right to
dispose of it in any other manner allowed by the contract or the

rules of law {Gen. Stat., oh. 151, §§ 9-11).
There is also a provision of the statute which declares that every
factor or agent intrusted with the possession of merchandise, or a
bill of lading, consigning merchandise to him for the purpose of
sale, shall be deemed to be the true owner thereof, so far ^ to
give validity to any iona fide contract made by him with any other
person for the sale of the whole or of any part of such merchan-
dise. And if any person takes such property as a pledge from
STATUTES RELATING TO PLEDQES. 699
such factor or agent with notice that such factor or agent holds the
same simply as factor or agent, then the pledgee will acquire the
same interest as though such factor or agent had been the actual
owner thereof, provided the pledge was taken in good faith, and
with probable cause to believe that the factor or agent had autho-
rity to make the pledge, and was not acting fraudulently.
If, however, the merchandise is accepted in deposit or pledge
for an antecedent debt due from the factor or agent, the perion
receiving the same will thereby acquire no other or further right,
or interest in, or authority over, or lien upon, the same, than the
consignee or grantor might have enforced against the actual owner
{Qen. Stat., ch. 54, §§ 2, 4, 6).
And there is also a provision of the statute that, in transfers of
stock as collateral security, the debt or duty which such transfer is
intended to secure shall be substantially described in the deed or

instrument of transfer; and, further, that a certificate of stock
issued to a pledgee or holder of such collateral security shall
express on the face of it that the same is so holden, and the name
of the pledgor must be stated therein, who alone is made responsi-
ble as a stockholder {Gen. Stat., ch. 68, § 12).
No special statutory provision in respect to pawns or pledges is
found in the laws of Rhode Island or Connecticut, and hence the

subject is controlled by the rules of the common law in those
CHAPTEE LIV.
BTATUTOET PEOVISIONB IN EEBPECT TO THE StTBJECT OF PAWNS OE

PLEDfJES LAWS OF THE TEEEriOEY OF AEIZONA EELATING TO
PLEDGES AND PAWNBEOKING LAWS OF THE SEVBKAt STATES UPON
THE SUBJECT, EXCEPTING THOSE OF NEW YOEK AND THE NEW ENG-
LAND STATES, WHICH AEE CONSIDEEED IN THE TWO PEECEDING
CHAPTEES.
In the territory of Arizona, it is provided by statute that every

person or firm engaged in the business of pawnbroker or pledgee,
3r of the purchase or sale of second-hand clothing, wares or mer-
ihandise, shall keep a register book, of the known by stationers
size
w six quarto extra cap, in which shall be made an entry, with ink,
in the English language, at the time of loan, pledge or purchase, a
,
700 L^W (f^ PLEIH}BS.
true and accurate account and description of every article of pro-

perty pledged or purchased, the name and residence of the pledgor
or vendor, the date, duration, amount and rate of interest of every
loan made, or the date and hour of purchase of any property pur-
chased ; and shall, if any loan be made or property pledged, at the
time of the loan or pledge, deliver to the pledgor a written or

printed memorandum, signed by him, her or them, containing a
copy of said entry and shall in like manner keep an account of all
;
sales made by him, her or them.

The rate of interest or per centage which may be lawfully
charged by any pawnbroker or pledgee must not exceed five p ;
cent per month, in advance, on all loans exceeding twenty doUa
which will include all charges for discount, commissions, storage,
brokerage, wasting, and all and every charge or charges there-
upon, nor can the interest at any time be compounded.
And it is declared that any pawnbroker or pledgee who shall
directly or indirectly charge or receive any interest greater than

five per cent per month, or by charging commissions, discount, bro-
kerage, storage, wastage, or other charge, or shall attempt to increase
said interest, shall forfeit three times the value of the article pledged
or to be pledged, to be recovered by the owner or pledgor in a civil
action, which may be brought by the party aggrieved.

The statute further provides that no pawnbroker or assignee
shall sell or dispose of any article pledged to them and unredeemed
until it has remained in his, her or their possession three months
after the last day of redemption and all such sales must be at
;
public auction, upon notice of five days, published in some news-

paper printed at the place where the sale takes place and if no ;
newspaper is there printed, then by printed notices in two public

places five days before the sale, giving the place where the article
will be sold, and a list of said articles, which sales are required in
all cases to take, place in the town or city where such articles are
pledged.
Upon a sale of any pawn or pledge, the pawnbroker or pledgee
may retain from the proceeds of the sale the amount of the loan,
the interest thereon at the rate provided, and ten per cent on the
loan additional for the expense of the sale, and the balance must be
paid to the person entitled to redeem such property ; if no sale had
been made, and if not so paid on demand, three times the value
STATUTES BELATINQ TO PLEDGES. 701
iiereof will be forfeited, to' be recovered by the owner or pledgor

in a civil action to be brought by him therefor.
Every pawnbroker, or pledgee, or purchaser or seller of second-
hand clothing, etc., is required to exhibit his, her or their register
hook ; and all articles received in pledge or purchased by him, her
or them, and his, her or their account of purchases or sale, to any
sheriff, constable or police officer possessing the necessary writ or
warrant to search for personal property ; and the register book
must be produced to any sheriff, constable or police officer for
inspection, whenever so required by the order of any committing
isagistrate of the county, which order may be made whenever the
magistrate deems it expedient for the purpose of ascertaining the
place or concealment of any stolen property.
Every violation of any of the provisions of the statute by any
pawnbroker, pledgee, or purchaser or seller of second-hand cloth-
ing, etc., is made a misdemeanor, punishable by a fine not less than
$50 nor exceeding $300, or by imprisonment in the county jail for
a term not exceeding six months, or by both such fine and impri-
Pfinment. Such fines, when collected, are to be paid into the
tueasiuy of the county where collected, to be applied to the support
of the public schools of the county (Comp. Loads of 1864r-187l,
ch. 88).
In the State of California the statute requires every person or

firm engaged in the business of pawnbroker or pledgee, or of the
purchase or sale of second-hand clothing, wares or merchandise, to
keep a register book of the size known by stationers as six quarto
extra cap, in which shall be made an entry, with ink, in the Eng-
lish language, at the time of loan, pledge or purchase, a true and
accurate account and description of every article of property

pledged or purchased, the name and residence of the pledgor or
vendor ; the date, duration, amount and rate of interost of every
loan made, or the date and hour of purchase of any. property pur-
chased ; and if any loan be made or property pledged at the time
of the loan or pledge, to deliver to the pledgor a written or printed
memorandum, sjgned by him, her or them, containing a copy of
said entry and an account of all sales made by him, her or them,
must, in like manner, be kept.

Every pawnbroker, ox pledgee, or purchaser or seller of second-
hand clothing, etc., is required to exhibit his, her or their register
book ; and all articles receivedin pledge or foreclosed by him, her
702 LAW OF PLEDGES.
or them, and his, her or their account of purchases or sales, to anj

sheriff, constable or police officer possessing the necessary writ or
warrant to search for personal property. And it is made the duty
of every such pawnbroker, pledgee, purchaser or seller to produce
his, her or their register book, for inspection, to any sheriff, con,
whenever so required by the order of any

stable or police officer,
committing magistrate of the county and such order may be
;
made by such magistrate whenever he shall deem it expedient for

the purpose of ascertaining the place of concealment of any stolen
property. And every violation of the statute by any such pawn-
broker, pledgee, purchaser or seller is made a misdemeanor, pun-
ishable by $50, nor exceeding $500, or by
a tine not less than
imprisonment in the county jail for a term not exceeding six months,
or by both such fine and imprisonment (3 Oen. Laws 1864-1870, §§
9077, '9079, sujyplermnt).
It is further provided by statute that the rate of interest or
per eentage, which shall be lawfully charged by any pawnbroker or
pledgee, shall not exceed four per cent per month, in advance,
on all loans exceeding twenty dollars, which shall include all
charges for discount, commissions, storage, brokerage, wasting,

and all and every charge or charges thereupon and the interest
;
cannot at any time be compounded. And any such pawnbroker

or pledgee who shall violate this provision of the statute will for-
feit three times the value of the article pledged, or to be pledged,
to be recovered by the owner or pledgor in a civil action which
may be brought by the party aggrieved.
No pawnbroker or pledgee can legally sell or dispose of any
article pledged to him or her, and unredeemed, until it has
remained in his or her possession six months after the last day of
redemption and all such sales are required to be at public auction
;
upon notice of five days, published in some newspaper printed at

the place where the sale takes place; and if no newspaper is there
printed, then by posting two public places, five days
notices in
before the sale, giving the place where the article will be sold, and
a list of said articles, which sales must, in all cases, take place in
the town or city where such articles are pledged. The pawn-
broker or pledgee is entitled to retain from the proceeds of any
such sale the amount of the loan, the interest due thereon, and
four per cent on the loan additional for the expense of the sale,
and the surplus, if any^ must be paid over to the person entitled
to redeem such property, if no sale had been made, and if not so

paid on demand, three times the amount thereof will be forfeited,
to be recovered by the owner or pledgor, in a civil action to be

brought by him therefor (1 cmd 2 Gen. Lanos, 1850-1864, §§ 4827-
4830).
These statutes apply in the ordinary cases of pledge, and in
some respects they modify the common law upon the subject.
The Supreme Court has held that the act prohibiting pawn-
from charging more than four per cent per
brokers or pledgees
month on loana made on property pledged as security, is not in
violation of section 29, article 1, of the Constitution, which pro-
vides that " all laws of a general nature shall have a uniform
operation." Andwas further held that where a pawnbroker
it
loans money upon property pledged, and the borrower contracts

to pay him more than four per cent interest per month, he can
recover possession of the property by tendering him the principal
and four per cent per month interest {Jackson v. Shawl, 29 CaL
R., 26Y).
The common-law rights of the pledgee, except as modified by
the statute, have been expressly recognized by the courts ; and it
has been held that the common-la.w right of the pledgee to sell
the pledge upon the default of the pledgor, and thereafter bring
his action for any balance remaining unsatisfied, is wholly unaf-
fected by chapter 17, title 8 of the practice act of the State. The
plaintiff in the ease was not a pawnbroker, and the property
pledged was sold on due notice, after the maturity of the obliga-
tion,and after a demand of the money unpaid, but before the
expiration of the sixmonths provided by statute ; and the action
was brought to recover the balance due over and above what was
made by the" sale of the pledge {Mangue v. Ha^vnghi, 26 Cal.
R., 577).
It will is a marked similarity between
be observed that there
Arizona and that of the State of
the statute of the Territory of
California upon the subject of pawns, and it is evident that the
first was formed from the latter but the provisions of the two
;
enactments differ in some material respects, and, therefore, it

becomes necessary to insert the substance of the statutes of each
commonwealth.
There do not seem to be any general statutes upon the subject
of pawns or pledges in the States of Delaware or Florida, so that
;
704 LAW OF FLEDGES.
the common law is in full force in those States. In the State of

Georgia they have a statute by which a pledge, or pawn, is defined
to be property deposited with another as security for the payment
of a debt. Delivery of the property is made essential to this
•
bailment, but promissory notes and evidences of debt may be
delivered in pledge. It is declared that delivery of title-deeds
creates no pledge.
The statute declares that the receiver in pledge or pawn of
promissory notes is such a horia, fide- holder as will protect him
under the same circumstances as a purchaser from the equities
between the parties, but not from the true owner, if fraudulently
transferred, though without notice to him.
The pawnee is authorized by the statute to, sell the property
received in pledge after the debt becomes due and remains unpaid
but he must always give notice for thirty days to the pawnor of
his intention to sell, and the sale must be in public, fairly con-
ducted, and to the highest bidder, unless otherwise provided by
contract.
The statute further provides that the pawnee may use the goods
pawned, provided the use does not impair their iêal value. He
has a lien on them for the money advpihoed, though not for other
debts due to him. He may retain possession until his lien is satis-
fied, and has a right of action against any one interfering therewith.
The general property in the goods remains in the pawnor by

the express provision of the statute ; but the pawnee has a special
property for the purposes of the bailment, and it is provided that
the death of neither party interferes with their respective interests.
It is further provided that the pawnee may transfer his debt, aud
with it possession of the thing pawned, and that the purchaser
stands precisely in his situation. And property in pawn may be
seized and sold under execution against the pawnor, but upon
notice by the pawnee to the levying officer and the court in dis-
;
tributing the proceeds will recognize his lien according to its dig-
nity, and give such direction to the funds as shall protect his legal
rights.
The pawnee is bound by statute for ordinary care and diligence,
and if the property pledged be promissory notes or other evidences
of debt the pawnee must exercise ordinary diligence in collecting
and securing the same. The pawnor is required by the statute to
pay all necessary expenses and repairs upon the property but ; if
STATUTES BJELATING TO PLEDGES. «
705
he pawn lias itself been profitable, or if the pawnee has used it to

lis own advantage, the pawnor may require him to account for
uch profit. And all! interest of property in pawn belongs to the
lawnor, by the provisions of the statute {Revised Code q/" 1866,
nrt 2, mt. 3, ch. 7, a/rt. 6, §§ 2110-^2119).
The statute of Georgia makes but little modification of the com-
non law, although in some respects it is slightly changed or more
ilearly defined.
No statutes exist, of a general nature, in relation to pledges or
)awiis, in Illinois, Iowa or Kentucky, and none in Kansas
Indiana,
ixcept that by a general law, the cities of the State may levy and
!ollect a Hen for tax on pawnbrokers doing business within their
espeetive limits {Gen. Stat, of 1868, oh. 18, § 15,- sub. 5 ; and ch.
L'9, 1 30, sub. 4).

In the State of Louisiana, they have a peculiar statutory policy
n respect which exists in any
to the subject of pledges, unlike that
)ther of American States. The statute defines a pledge to be a
the
jontract by which one debtor gives something to his creditor as a
security for his debt, and the statute makes two kinds of pledge,
the pawn and the antichresis. A thing is said to be pawned where

1 movable thing is given as security, and the antichresis where the
security given consists in immovables.

Generally it is declared that every lawful obligation may be
3nforeed by the auxiliary obligation of pledge. If the principal
jbligation be conditional, that of the pledge is confirnied or extin-
guished with it. If the obligation is null, so also is the pledge.

The obligation of pledge, annexed to an obligation which is
purely natural, is rendered valid only where the latter is confirmed
md becomes executory.
Pledge may be given not only for an obligation consisting in
money, but also for one having any other object ; for example, a
surety. one person from giving a pledge to
ISTothing prevents
fflothei*for becoming his surety with a third. And it is provided
that a person may give a pledge, not only for his own debt, but
for that of another also.

A debtor may give in pledge whatever belongs to him but with ;
regard to those things in which he has an ownership which may be

iivested, or which is subjected to incumbrance, he cannot confer on
the creditor by the pledge any further right than he had himself.
To know whether the thing given in pledge belonged to the

706 '
LAW Of PLEDGES.
debtor, reference must be had to the time when the pawn was made.
If at the time of the contract the debtor had not the ownership
of the thing pledged, but has acquired it since, by what title soever,
the statute provides that his ownership shall relate back to the time
of the contract, and the pledge should stand good.
One person may pledge the property of another, provided it be
with the express or tacit consent of the owner. But the statute
provides that this tacit consent must be inferred from circumstan-
ces so strong as to leave no doubt of the owner's intention as if ;
he was present at the making of the contract, or if he himself

delivered to the creditor the thing pawned,
Although the property of another cannot be given in pledge
without his consent, yet, so long as the owner refrains from claim-
ing it, the debtor, who has given it in pledge, cannot seek to have
it restored until his debt has been entirely discharged.
Trustees of minors, and creditors of persons under interdiction,
of vacant estates and of absent heirs, testamentary executors and
other administrators, named or confirmed by a judge, are forbidden
to give in pledge the property confided to their administration,
without being expressly authorized in the manner prescribed by
law. And an attorney cannot give in pledge the property of his
principal without the consent of the latter, or an express power to

that effect. Nevertheless, where the power of attorney contains a
general authority to mortgage the property of the principal, this
power is declared to include that of giving it in pledge.

The property of cities and other corporations can only be given
in pledge according to the rules, and subject to the restrictions}
prescribed or established by their respective acts of incorporation.
And a partner cannot, for his own concerns, give in pledge the
partnership property without the consent of his associates; he
cannot do even for the partnership concerns without such con-
it
sent, unless he be vested with the management of the copartner-

ship. This rule, however, admits of exception in matters of com-
mercial partnership.
It is made essential to the contract of pledge that the creditor
be put in possession of the thing given to him in pledge and, ;
consequently, that actual deliyery of it be made to him, unless he

has possession of it already by some other right. But this delivery
is only necessary with respect to corporeal things. As to incorpo-

;
STATUTES RELATING TO PLEBQES. 707
real rights, such as credits, which are given in pledge, the statute
declares that the delivery is fictitious and symbolical.
With respect to the pawn, the statute provides that one may
pawn every corporeal thing which is susceptible of alienation.
One may even pawn merely as a security for performing or
refraining to perform an act. And one may, in fine, pawn incor-
poreal movables, such as credits, and other claims of that nature.
But where a debtor wishes to pawn a claim on another person,
he must make a transfer of it in the act of pledge, and deliver to
the creditor, to whom it is transferred, the note or instrument
which proves its existence, if it be under private signature, and
must indorse it if it be negotiable.
The pawn invests the creditor with the right of causing his
debt to be satisfied by privilege, and in preference to the other
creditors of his debtor, out of the product of the movable, corpo-
real or incorporeal, which has been thus burdened. But this
privilege can take place against third persons only in case the
pawn is proved by an act, made either in a public form or under
private signature
. : provided such act has been recorded in the
manner required by law ; provided, also, that whatever may be in
the form of the act, it mentions the amount of the debt as well as
the species and nature of the thing given in pledge, or as a state-
ment annexed thereto of its number, weight and measure.
When a debtor wishes to pawn promissory notes, bills ot
exchange, stocks, obligations or claims upon other persons, he
must deliver to the creditors the notes, bills of exchange, certifi-
cates of stock, or other evidences of the claims or rights so pawned

and such pawn, so made, is declared, without further formalities,
to be valid, as well against third persons as against the pledgors
thereof, ifmade in good faith.
The statute provides that all pledges of movable property may
be made by private writing, accompanied by actual delivery and ;
the delivery of property on deposit in a warehouse is made to pass

by the private assignment of the warehouse receipt, so as to
authorize the owner to pledge such property and such pledge, so ;
made, without further formalities, is declared to be valid, as well

against third persons as against the pledgors thereof, if made in
good faith. But if a credit, not negotiable, be given in pledge,
notice of the same is required to be given to the debtor.
The acts of pledge in favor of the banks of the State, the statute
708 LAW OF -PLEOaES.
declares, shall be considered as forming authentic proof, if they have

been passed by the cashiers of those banks or their'branches, and
contain a description of the objects given in pledge, in the manner
directed as before stated.
Where a thing given in pledge consists of a credit not negotiable,
to enable the creditors to enjoy the privilege mentioned, it is made
necessary, not only that the proof of the pledge be made by an

authentic act, orby act under private signature, duly recorded, but
that a copy of this act should have been duly served on the debtor
of the credit given in pledge. On the other hand, this notifica-
tion by the act of pledge to the person owing the debt pledge, is
declared not to be necessary if the debt is evidenced by a note or
other instrument, payable to the bearer or to order ; because, in

that case it will suffice that the note or instrument shall have been
indorsed by the person pledging it, to invest the creditor with the
privilege before mentioned. In no ease does this privilege subsist
on the pledge, except when the thing pledged, if to be a corporeal
movable or the evidence of the credit, if it be a note or other
instrument under private signature, has been actually put and
remained in the possession of the creditor, or of a third person
agreed on by the parties.
Where several things have been pawned, it is declared that the
owner cannot retake one of them without satisfying the whole
debt, though he offers to pay a certain amount of it in proportion
to the thing which he wishes to get. And the creditor, who is in
possession of the pledge, can only be compelled to return it, but
when he has received the whole payment of the principal, as well
as the interest and costs.
The creditor cannot, in case of failure of payment, dispose of

the pledge ; but where there have been pledges of stocks, bonds or
other property, for the payment of any debt or obligation, it is
made necessary before such stocks, bonds or other property so

pledged shall be sold for the payment of the debt for which such
pledge was made, that the holder of such pledge be compelled to
obtain a judgment in the ordinary course of law, and the same
formalities, in all respects, must be observed in the sale of property
so pledged as in ordinary cases. And any clause which should
authorize the creditor to appropriate the pledge to himself, or dis-
pose thereof without the formalities prescribed by the statute, it
is declared shall be null.

STATUTES RMLA21N0 TO FLEDGES. 709
It is provided that, imtil the debtor be divested of his property,

. he remains the prpprietor of the pledge, which is in the hands of
the creditor only as a deposit to- secure his privilege on it; and
the creditor is answerable agreeably to the rules which have been
gs^sblished under the
bf coniiersional obligations, for the loss
title
or decay of the pledge, which may happen through his fault. On

his part the debtor is bound to pay to the creditor all the useful
and necessary expenses which the latter has made for the preser-
vation of the pledge. The fruits of the pledge are deemed by the
statute to make a part of it, and, therefore, they remain, like the
pledge, in the hands of the creditor, but he cannot appropriate
them to his own use ; he is bound, on the contrary, to give an
account of them to the debtor, or to deduct them from what may
be due to him. If it is a credit which has been given in pledge,
and if this credit brings interest, the creditor is required to deduct
this interest from that which may be due to him but if the debt, ;
for the security of which the claim has been given, brings no
,
interest itself, the deduction is required to be made on the princi-
pal debt. If the credit, which has been given in pledge, becomes
due before it is redeemed by the person pawning it, the creditor,
by virtue of the transfer which has been made to him, is declared
to be justified in recovering the amount, and in taking measures to
recover When received, he must apply it to the payment of

it.
the debt due to himself and restore the surplus, should there be
any, to the person from whom he held it in pledge.
The pawn cannot be divided, notwithstanding the divisibility
of the debt between the heirs of the debtor and those of the
creditor. The debtor's heir, who has paid his share of the debt,
cannot demand the restitution of his share of the pledge, so long
as the debt is not fully satisfied; and, respectively, the heirs of
the creditor, has received his share of the debt, cannot return
who
the pledge to the prejudice of those of his co-heirs who are not
satisfied.
If the proceeds of fhe sale exceed the debt, the surplus is

required to be restored to the owner if, on the contrary, they are
;
not sufficient to satisfy it, the creditor is entitled to claim the bal-
ance out of the debtor's other property. The debtor who takes
away the pledge without the creditor's consent, commits a sort of
theft, in thie language of the statute. "Where the creditor has

been deceived in the substance or quality of the thing given in
710 i^ Vr OF PLBDQES.
pledge, the statute provides that he may claim another thing in its
stead, or demand immediately his payment, though the debtor be

solvable.
And the statute provides that the creditor cannot acquire the
pledge by prescription, whatever may be the time of his possession.
The antichresis is required to be reduced to writing, and the
creditorby it acquires the right of reaping the fruits of the
immovables given to him in pledge. The creditor is required to
pay the taxes on the property pledged unless the contrary be
stated in the contract. He is required also under penalty of dam-
ages to provide for the keeping, use, and neces8a,ry repairs of the
pledged estate. The debtor cannot, before full payment of the
debt, claim theenjoyment of the pledge. But the creditor may
compel the debtor to retake the enjoyment of his immovable.
The rights of the parties in the antichresis are similar to those
in an ordinary pawn or pledge. The creditor, who is in posses-
sion by way of antichresis, cannot have any right or preference on
the other creditors ; but if he has by any other title, some pri-
vilege or mortgage lawfully established or preserved thereon,

he will come in his rank as any other creditor {Revised Civil Code
of 18Y0, tMe 20, ch. 2, 3).
In the State of Maryland there seems to be no statute in respect
to pledges or pawns. And in the general statutes of Michigan,
the only provision upon the subject, is that which declares that
the interest of the pledgor in the thing pledged may be sold on
execution against him, and the purchaser will be entitled to the
thing on complying with the terms of the pledge (2 Comp. Laws,
ch. 131, § 23, general section 4461).
No statutes upon the subject of a general nature exist in the
States of Minnesota, Mississippi, Missouri, Nebraska, Nevada and
New Jersey.
In the State of Ohio it is provided by statute that any person
or persons carrying on the business of pawnbroker, or of loaning
money on jewelry, goods, chattels, or other personal property, in
any city of the first or second class, shall be required to take out
a license from the city in which they may do business ; the cost
of such license not to exceed $200 per annum, to be fixed by
ordinances of the cpuncil of such city.
Pawnbrokers are required to keep a correct list and description,
in abook for that purpose, of any and all articles pledged or
STATUTES RELATING TO PLEDaES. 711-
deposited with them, or on which advances of money have been

made, or which may be purchased by them, which list and descrip-
tion must at all times be open to the inspection of the chief of
police of the city, or of a police officer deputed by him, or by the
mayor, to make such inspection. They must,
at all times when
BO by the chief of police or such police officer or mayor,

required
produce and show to him any article so listed and described, which
may be in their possession. And any person violating any of
the provisions of the statute, upon conviction thereof, is subject to
be ^ned in any sum not less than ten nor more than $100 {S'wp.
to B. S., 821, 822).
The State of Oregon has no legislative enactments in respect to

pawns or pledges, or pawnbrokers or the business of pawnbroking,
and consequently the common law governs the subject in that State.
In the State of Pennsylvania, it is provided by statute that any
goods or chattels of any defendant in a writ of fieri facias, which
shall have been pawned or pledged by him as security for any debt
or liability, shall be liable to sale upon the execution, but subject
nevertheless to all and singular the rights and interests of the
pawnee to the possession or otherwise of such chattels or goods by
reason of such pledge {Pwdon^s Big., 432, § 13).
The statute further provides that persons advancing money on
pledge of goods by a factor, without notice that such factor is not
the actual owner of such goods, shall acquire the same interest and
authority in and over the goods as he would have acquired thereby
if such factor had been the actual owner thereof; and that if the
pledge was taken with notice that such factor is a factor only, then
the pledgee shall acquire the same interest he had against his prin-
cipal. The owner of the goods thus pledged may, however, redeem
such goods by paying or tendering the amount advanced thereon
to such factor {Pwdon^s Dig., 453, §§ 3-5).
There seems to be no special statutory provision in respect, to
pledges or pawns in the States of South Carolina,, Tennessee,
Texas, Virginia or West Virginia.
And in the State of Wisconsin there is only a provision that
where goods and chattels shall be pledged for the payment of
money or the performance of any contract or agreement, the right
and interest in such goods of the person making such pledge may
be sold on execution against him, and the purchaser shall acquire
all the right and interest of the defendant in the execution, and
712 L-AW OF PLEDGES.
Bhallbe entitled to the possession of such goods and chattels on

complying with the terms and conditions of the pledge {Rev. Stat.,
ch. 134, § 21).
This concludes the statutory provisions of the several States
upon the subject of pawns or pledges and the business of pawn-
broking, and here closes the discussion of the general subject of
pawns or pledges in the United States.
The Law of Usury, Pawns or Pledges, and
Maritime Loans.
Part III,
THE LAW OF MARITIME LOANS.
eo
;
CHAPTER LT.
ABTIQUITT OF MARITIME LOANS TEXTS OF THE ROMAN LAW RELATING

TOTHE SUBJECT DEFINITION, LEGALITY AND NATURE OF A MARITIME
LOAN —
THE CONSTITUENTS OF A BOTTOMRY CONTRACT DIFFERENCE —
BETWEEN BOTTOMRY, LOAN, PARTNERSHIP AND INSURANCE FORM
OF A CONTRACT OF MARITIME LOAN.
The subject of maritime loans is so nearly related to the other

subjects considered in this work that it may be appropriately
:'
treated in the same volume. A few brief statements have already
been made, in a previous chapter on usury, in respect to bottomry
and respondentia {fimte, ch. 14) ; but a more extended notice of
the general subject of maritime loans is necessary than that con-
tained in the two or three pages there devoted to it.
,
There is a resemblance between contracts of maritime loan and
insurance, and they are frequently governed by the same rules
and, yet, each has a character peculiar to itself. Insurance has
acquired an extensive empire, and it enjoys a dignity which sur-
passes that of maritime loans; and, yet, maritime law possesses
certain privileges of which insurance is deprived, and it is much
more ancient in its origin. Insurance was little known to the
ancient Homans, while the contract of maritime loans was in
general use among them, under the name of pecunia trajeciitia.
Money, lent at maritime interest and risk, was so called because
it was lent to a person, to be employed by him in maritime com-
merce, upon condition of returning it in case of a successful trade

with maritime interest. And there was a stipulation in the con-
tract that the money lent shoiild not be returned, nor should
interest be paid for the loan of it, if the vessel should happen to
by the perils of the sea in the prosecution of a specified
be lost
voyage {Cahmus).
The texts of the Roman law relating to maritime loans, expressed
in the briefest manner possible, were as follows The money was :
given to the borrower, to be employed by him in commercial

speculations upon and beyond seas or, in other words, it was
;
716 L-AW OF MARITIME LOANS.
taken, to be transported beyond sea at the risk of tlie lender, and

to be employed in merchandise for the advantage of the borrower.
If the money lent was expended in the same place in which it
was furnished, it was not said to be trajectiUa ; but if it was
expended in the purchase of jaerchandise in the place where it
was lent,, and the merchandise was afterward embarked at the risk
of the lender, it was held to preserve its quality of being trajectitia.
So that the essence of the maritime loan, by the Eoman law, con-
sisted in the hazard of th« lender. The- money was not at the risk
of the lender until the vessel had set sail ; but from that moment
the lender incurred the hazard. Until the maritime peril was
incurred by the lender, nothing could be claimed for the use of
his mioney but common and he was not permitted
legal int;erest,
to retain the pledge or lien that had been given him to demand
maritime interest, because that interest was not due to him.
It was lawful to lend upon bottomry, or for an entire voyage, oi
for a limited time ; but as soon as the lender had ceased to run
the risk, the common and not the maritime interest was to be paid.
The lender was not prohibited from demanding pledges and hypo-
thecations as an additionall security, provided that it was not a
pretext for exacting maritime interest after the sea risk shovdd be
at an end. That which was received beyond the principal was a
premium paid for the risk; or it was less an interest than an
increase of the debt, in consideration of the peril to which the
money was exposed. The lender was not prejudiced by a loss
which happened at sea through the fault of the borrower. From
the moment that the vessel left the port at which the money was
borrowed, until she arrived at the port of her destination, the
perils of navigation were at the risk of the lender, who had agreed
to incur them. But if there was no stipulation to that effect, the
borrower ran the risk. But, in that case, the lender was not per-
mitted to stipulate for or receive any more than his principal with
legal interest. In which case, the contract was a mere hypotheca-
tion or pledge of the vessel or goods for the security of the money
which had been lent but it was not, properly speaking, a mari-
;
time loan.
Such are, in a few words, the texts of the old Eoman law upon
this subject of maritime loans, which are fully explained in the
ancient and learned commentaries, Sbypma/wnus and Looenmi.
According to the Guidon de la Mer, the contract of bottomry,
NATURE OF tHE CONTRACT. 717
such as is now in customary use, has very little resemblance to

îthat which was used by the ancient Eomans. But it will be
observed, in the course of the examination of the subject, that this
assertion is not strictly accurate, except as it regards the form
which modern rules have given to the contract whose origin is lost
in antiquity.
According to M. Pothier, the contract of maritime loan " is an

agreement,'<iby which one, who is the lender, lends to another, who
is the borrower, a certain sum of money, upon condition that if the
thing, upon which the loan has^ been made, should be lost, by any
peril of the sea, or vis meyor, the lender shall not be repaid, unless
what remains shall be equal to the sum borrowed ; and tliat if the
thing arrive in safety, or in ease that it shall not have been injured,
by its own defect or the fault of the master and mariners, the bor-
rower shall be bound to return the sum borrowed, together with
•
a certain sum agreed upon as the price of the hazard incurred"
{Pothder's Oontrats a la Grosse, JVo. 1). This definition is taken
from the Roman laws, and it is about the same as found in all the
books. It is called gross ad/oenlMre^ because the lender exposes
his money to the perils of the sea, and contributes to the gross or
general average. And it is also called a loan on the return voyage,
because the lender generally runs all sea risks until the safe return
of the ship.
He who furnishes the money, in case of a contract of bottomry,

is termed the lender, and he who receives it, the> borrower ; in the
Eoman law the lender was termed the creditor. The condition of
the contract is said to be fulfilled when the vessel arrives in safety
at her destined port ;not performed when the voyage is
and it is
riot completed. The which the lender claims, in case of a

interest
successful voyage, is the price of hazard, j?eWc'M^*^7'e^TO, and the
contract has nothing in it which resembles usury. And bottomry

bonds may be given for the security of mercantile or other debts,
either in places where the owners dwell or in foreign places by
their order {Forbes v. The Brig Mannah, Bee^s Ad/in. Deo., 348).
Bottomry is adopted in all commercial countries, and has been
introduced into commerce for the advantage of society. It is not
a sale, nor a partnership, nor a loan, properly speaking, nor an
assurance, nor a contract composed of different kinds ; but it is a
sp'ecific contract, known to the law, and has a character and quali-
ties pjculiar to itself.
;
718 LAW OF MARITIME LOANS.
To constitute the contract of bottomry, the money must be

invested in something which is exposed to the dangers of the sea;,
and, in case of loss, it is incumbent on the borrower to prove pro-
perty to the amount of the loan. It is not less essential to the
contract that the peril be borne by the lender {Pothier, iTo.
16, h. t.). It cannot properly be said to be a contract of bottomry
until the day that the risk commences. Hence, if the borrower
expend the money on shore, without exposing it to the dangers of
the sea, it cannot be a contract of bottomry, although the instru-
ment of writing between the parties may call it so {TumbuU v.
The Ship Enterprise, Be^s Adm. Dec, 345). As soon as the
risk ceases, either by the safe arrival of the vessel or by the expira-
tion of the stipulated term, the contract ceases to bear a maritime
interest. And if the contract was void in its commencement, the
maritime interest is not chargeable, because no maritime dangers
were borne by the lender. A bargain on a mere contingency,
where the reward is given for the risk, not for forbearance, as has
been shown in the comments upon usury, will not be within the
statutesagainst usury {Button v. Downham, Cro. Eliz., 643).
It follows, from this, that a hona fide contract of bottomry is not
obnoxious to the statutes prohibiting usury ; for if a man give or
lend money, not to be paid if the event should be one way, but
double if the other, and it is uncertain which way it will happen,
the transaction cannot be usurious, because the reward is given for
the risk and not for the forbearance. This doctrine has been fiilly
discussed in previous chapters on usury, and need not be dwelt

upon in this place.
It has been intimated that there is a manifest difference between

contracts of bottomry and those of loan, partnership and insurance.
Bottomry is different from the contract of loan, because : 1st. The
peril of money, simply lent, concerns the borrower; whereas
money lent at bottomry is at the risk of the lender. 2d. In a
simple loan, interest is not due but by positive stipulation;
whereas maritime interest is implied in the contract itself. 3d. In
a simple loan, the interest, among merchants, cannot exceed the
rate fixed by statute, or, at most, the custom of the country
whereas bottomry may carry any interest which may be agreed
upon by the parties. 4th. Legal interest is sometimes calculated
annually, or at other fixed periods, in a successive manner, and
separate from the principal ; whereas the whole maritime interest
NATURE OF TBE CONTRACT. 719
is due jointly with the principal and at the same time, and the
maritime interest is an augmentation of the principal.
It is remarked in common parlance that the contract of bottomry
is a kind of partnership which is foi-med between the lender and

the borrower, and some of the early writers declared it to be so.
But in order to constitute a partnership, the capital, the loss or

the gain should be shared or -borne in common by both of the par-
ties. .Here nothing is common between them. There is there-
fore no partnership. In
fact, partnership is an agreement between
two or more persons, by which they hold all or a part of their

goods in common or it rpay be for a particular voyage, a particu-
;
lar work or other affair, in which they are to bear the loss or reap
the profits in certain proportions. But money lent at gross

adventure belongs properly to him who has received it. The
profits voyage belong to him exclusively, with the excep-
of the
tion of the maritime interest which he is obliged to pay. The sea
risks are borne by the lender. It is certain, then, that a contract
of maritime loan is not a partnership, notwithstanding certain
authors have supposed that they could perceive a species of part-
nership in the contract. It may be remarked, however, that there
is nothing to prevent the uniting the contract of maritime loan
with that of partnership, if such may be the desire of the parties.
The contract of maritime loan approaches more nearly to that of
marine insurance. There is a strong analogy between these two
transactions. In their effects they are construed on the same
principles. In case of the maritime loan, the lender bears the sea
risks; in that of marine insurance, the underwriter bears the
risk. In the one contract, the maritime interest is the price of the
peril; and this term corresponds with \he premium which is paid
in the other. The rate of the premium or interest is greater or
less, according to the duration and nature of the risk. In either
ease it is incumbent upon the plaintiff to prove tliat the condition
has been fulfilled. " In case of a suit, it lies upon the lender, in
order to render the contract of maritime loan executory, to show
that the ship has arrived at her port of destination in safety and ;
in an action on a policy of insurance, it lies upon the assured to

prove the loss, capture or shipwreck of the vessel" {Cleirac, on
the Gwidon de la Mer., oh. 18, art. 2, p. 331). In each contract,
it may be laid down as a general rule that the subject of the risk
should be on board at the time when the accident happens. In
720 LAW OF MAHrriXM LOANS.
general, the assurer and the lender are not responsible for the
barratry of the captain, or for losses occasioned by the fault of the
assured or the borrower.
But assurance and maritime loan are different in many respects.
In case of shipwreck, the lender has a lien upon all the
effects saved, without admitting the borrower to any par-
ticipation with him. On the contrary, if the whole of the pro-
perty is not covered by the policy, the assured takes a part of the
goods saved in common with the assurers. By the policy, the
assurer may restrict himself to particular sea risks ; but against
lenders^ such a limitation would be void. The formality of aban-
donment, which is necessary in insurance, is unknown in the con-
tract of maritime loan. In assurance the date of the policy must
be attended to, in order to regulate the return premium ; but it is
not regarded in contracts of maritime loan, effected for the same

purpose and in the same place. The assured may stipulate that,
in case of abandonment he shall not be obliged to pay freight; tlie
same indulgence is not granted to the lender on the vessel. There

are other distinctions between the two contracts, but it is unneces-
sary to note them.
In respect to the form of the contract of maritime loan, there is
nothing of especial importance which needs to be stated. The

contract may be drawn up in such a manner as the parties may
find suitable. It is sufficient, if the language be clear and une-
quivocal. It must contain proper clauses, and nothing must be
stipulated which is contrary to the nature of the contract. It will
be interpreted upon the same principles of other contracts ; and it
will be sufficient if the intention of the parties can be ascertained.

The contract may be made before a notary or under private signa-
ture. M. Pothier says :
" The instrument under private signature,
where it is acknowledged or proved, is equally authentic with tliat
which is executed before a notary public, as against the borrower
and his heirs. But it is not so as to third persons, against whom
the lender may wish to enforce the privileges attached to his con
tract. The date of instruments under private signature is not
i-egarded as against third persons, if it be not proved by some
other means than the instrument itself" {Pothier, n. 29). This
by the learned author, relates only to liens against
last rule, cited
piirchasers. It is otherwise where the question is of mere privity.

Such is the view taken at the present day.
MARITIME INTEREST. 721
The contract should contain the names of tlie borrower and

tender,and those of the captain and the vessel. It should also
mefltion the amount lent, the rate of interest, the times and places
of the risk, and whether the money is lent on the bottom or the
681^0, jointly or separately, and all other lawful stipulations which
felie parties may think proper to make. It has been sometimes said
to be necessary to state, by a special clause in the contract, that
tke lender undertakes to bear the maritime risks, but this agree-
ment will be presumed. It is sufficient that it plainly appear that
the (money is lent at maritime interest upon the vessel or cargo, or
both, to put the risks of the sea upon the lender.
A promissory note for 'oalue recewed in money lent at gross
adventure, without further explanation, would not be called a
bottomry bond, because it is wanting in the particulars before
stated to be requisite in such an agreement. Other points respect-

ing the internal form of these contracts will be referred to in the
course of this discussion. Those already noted will suffice for the
present. Certain specifications are peremptorily required in trans-
actions of bottomry, on account of the privileges attached to this
species of contract and to prevent abuses. But these particulars
will be made apparent as the general rules, in relation to bottomry
bonds, are more especially considered.
CHAPTER LYI.
MAErriME INTEREST — GENEKAL RULES US EESPEOT TO IT— RATE OF

MARITIME INTEREST COMMON LEGAL INTEREST — THE FRENCH
DECISIONS UPON THE SUBJECT.
The greatness of maritime interest, says Montesquieu, is founded

upon two considerations : The dangers of the sea, which render it
proper that we should not incur such hazards without a prospect of

uncommon advantages, and the facility by which the borrower
affects exterior speculations in consequence of the loan. On the
other hand, common legal interest, not being supported by such
reasons, is either entirely prohibited by the legislature, or, whicli
is more reasonable, it is restricted by proper limits {Montesq. Im.
22, oh. 20).
We cannot call that a contract of gi'oss adventure, says'Pothier^

which does not contain a stipulation for the payment of maritime
91
interest ; that is, the borrower must be bound to return not only
the principal, but an additional sum, or some other compensation
for the risk incurred. If a person lend a sum of money to a mas-
ter of a vessel for a certain voyage, with an agreement that it is
not to be returned in case of loss or the capture of the vessel by a

vis magor, and does not stipulate for a .maritime profit, it cannot
be called a contract of gross adventure. But it is merely a con-
tract of loan, mingled with a donation of the money lent in case of
the loss or capture of the vessel, which donation would become
valid upon the delivery of the money, provided the parties were
able to contract {Pothier, n. 19, A. t. Emerig. des. Assur., ch. 3).
In general, maritime interest is payable in money but accord- ;
ing to Pothier and the holding of the courts, in this country and in
Europe, the parties may stipulate for any other thing in which the
maritime interest shall be paid. And as the lender may stipulate
for anything, by way of interest, that is for any advantage to him-
self in case of the safe return of the vessel, it is obvious that this
advantage, whatever it may be, should be such an interest as will

give the legal character of gross adventure to the contract. For
example, a captain in time of war being at Smyrna and in want of
money to victual his ship, borrowed of a French merchant 1,000
piasters, Turkish money. Upon the safe arrival of his ship at
Marseilles, he engages to return this money at the rate of a French
crown for each piaster, the perils of the sea being at the risk of the
lender. This is a real contract of gross adventure, as the French
would call it, or contract of bottomry. The difierence between
the two coins constitutes the maritime premium and the price of
the risk. The captain, therefore, upon his safe arrival, should be
obliged to pay the full sum of 3,000 livres, which would, in fact,
be paying a premium of about twenty per cent on the sum bor-
rowed. Maritime interest is not due to a lender who has run no
risk, if it should so happen in consequence of the act of the
even
borrower, and, as the law now stands, the lender cannot demand
the principal nor premium, nor maritime interest, if the thing
upon which he lent his money be entirely lost by the accident of
the sea.
In respect to the rate of maritime interest, it may be remarked
that it may be regulated by the degree to which the lender exposes
or believes he exposes his money. Targa says that if the rate
stipulated be excessive, it is in the power of the court to lessen il
MARITIME INTEBMST. 723
{Ta/rga, ch. 53, n. 19, p. 149). Pothier observes that " altlioTigh
maritime profit, at however exorbitant a rate it may have been
fixed in the contract of gross adventure, is always considered in
foro exteriori as nothing more than the price of the maritime
perils, and is therefore lawful yet if the intention of the parties
;
was to comprehend in that profit, -besides the price of the risk, or

compensation for the loan and the credit given by the lender, this
profit would be, as to the compensation, unlawful and usurious in
foro eonscienUm" {Pothier, n. 2, h. t). But everything which
belongs to the forum conscientiw may be taken notice of foro m
exteriori, where a contract contains clauses which are repugnant to
the nature of it or where fraud is proved, for equity is a part of
tlie law, and law is a science as immutable as its Author, and the
duty of judges consists in making it respected.
Maritime interest or premium is generally stipulated at so
much per cent for the entire voyage, or by the month, etc.
The stipulated rate of interest is not aflected by the unexpected

arrival of peace or war, unless the event was provided for in the
contract. Such seems to be the general understanding of the law,
notwithstanding Pothier seems to have expressed a contrary opinion.
It is a general rule that the moment the risk commences the whole
maritime premium becomes due, although the contemplated voyage
is interrupted or the risk ceases before the expiration of the stipu-
lated term.*
Where the lender has begun to incur the risks, says Pothier,
although he has not borne them all the time that he contracted to
bear them, the voyage having been shortened, the entire maritime
profit is not the less due to him, provided no accident of vis major
*The French writers, when they speak of the consideration given for maritime
loans, employ a variety of words in order to distinguish it according to the nature
of the case.' Thus they call it interest where it is stipulated to be paid by the
mouth or at other stated periods. It is a premium where a gross sum is to be
paid at the end of a voyage and here the risk is the principal object which they
;
have in view. Where that sum is a per centage on the money lent they denomi-
. nate it exchwnge' considering it in the light of money lent in one place to be
returned in another, with a difference in amount between the sum borrowed and
that whichis paid, arising from the difference of time and place. Where they
intend to combine these various shades into one general denomination, they make
use of the term ma/riiime profit to convey their meaning ( Ficfe Mmerigon^s Marir
time Loans, 56, mofe). This explanation may be convenient to enable one to under-,
stand the meaning of the text where these expressions may occur,
has occurred to occasion the loss of the goods upon which the loan
was made {Pothier, n. 40, h. t.).
Where the money has been borrowed for th« voyage out and
home and the vessel fails to return, it has been a matter of con-
siderable discussion what premium the lender will be entitled to
coUect. But it has been long settled by the French Admiralty
Courts that if the property, upon which the loan was made, be
safely landed, no deduction from the maritime interest is to be
made, although the vessel do not return or be lost on her voyage.
If the borrower squander the property or its proceeds, or dispose
of it according to his own pleasure, instead of shipping the property
in another vessel, he is bound to repay the sum borrowed with
maritime interest ( Vide the cases gi/oen in Emerigon^s Essay on
Maritime Loans, 55-60)., .
Upon the termination of the maritime risks, if the borrower

delay the fulfillment of his contract, the charge of common legal
interest attaches i/pso jure, although it may not be judiciously
demanded. M. Pothier, after remarking that the principal of
money lent at gross adventure carries common legal interest only
from the date of the judgment, adds that " the same rule does not
extend to maritime interest, this profit being an accessary, which
is given by way of interest on the sum lent, natotioa usv/ra, navr-
Uownfom'as. You cannot demand interest upon it. It would
be interest upon interest, a compound interest which the laws pro-
hibit, accessio accessionis non est " {Pothier, n. 51, A. t!).
Deoormis, after having said that " when the peril ceases and the
vessel has returned, maritime interest ceases, ipso facto, and legal
interest commences," adds, that "it is by relation only to that
which is due upon the principal and you cannot, by adding it to
;
"
and merging it in the profits, obtain interest upon the total sum
(2 Decorrms, 810).
The French decisions add common legal interest to the mari-
time interest, not only from the time of the demand, but from the
time that the latter became due. This point was' not disputed
when M. Emerigon wrote, about 100 years ago, and yet he seems
tohave been in doubt whether the point was not disputable. He
observes " In the first place, it is certain that the contract of
:
maritime loan is not a partnership, as I have before proved and ;
there no law which provides that maritime interest shall, i/pso

is
jwre, carry common legal interest. Upon what authority, then, do

MARITIME INTBRBST^ 725
our decisions rest ? They say that maritime interest is the price
of pericuU êfium, ; that it
TpetiH, is an increase of the obligation,
according to the words of the law ; that it is an addition to the
capital, according to the language of Dowmoulin; that this
interest, being added to the principal, becomes identified with it,
and the two sums make an entire whole which ought to carry
interest. To such sophistry are they reduced ; and I cannot sup-
press my emotion when I behold them in this manner overwhelm
an unfortunate debtor, who returns to his country to be imprisoned
by his fellow-citizens, after he has escaped from the hands of
pirates and survived the perils of the sea. If, in contracts which
flowfrom commerce, the law has paid more regard to public con-
venience than to personal liberty, we ought at least not to be
more rigorous than it is, and enlarge by a new addition that which
is, in truth, but an addition itself. It would not be surprising if
this, point in our jurisprudence should be one day overruled.

It is supported by mere apices juris " {Essay on Maritime Loans,
62, 63). But the point has never been overruled, and there seems
to be no good reason why it should be. The argument in favor
of the rule is this : The maritime interest is a reward for the risk
Tjrhich the lender has incurred. When the peril ceases he is
entitled to his reward immediately. If it be withheld, the credi-

tor is entitled to a compensation for the use of his property, f torn
which he might have derived an advantage, by lending it again, if
he had received it when it became due. If the common legal

interest was not added to the maritime interest from the time the
latter became due, the lender would calculate not only upon the
perils of the sea, but upon the danger of delay upon land, and
increase the maritime interest accordingly. The borrower might

thus be injured by the very rule which was intended for his,
benefit.
commenced, the contract will become a simple

If the risk is not
loan, even though the borrower covenant to perform the voyage
{Marshall on Insurance, 647). And Marshall thinks that if the
lender has insured his principal, he should receive one-half per
cent upon the maritime interest and all costs of insurance,
together with his principal. Of the same opinion is Valin ; and
Emerigon agrees with them, provided the non-performance of the
voyage happen through the fault of the borrower.
A little over a hundred years ago, a case, involving this que*
tion, with others, came before the Admiralty Court at Marseilles,

in France, and the rule was laid down in accordance with the
principles here stated. It appeared that, in the year 1758, Jean
Baptiste Margerel, mate of the Pink called la Vierge de la Garde,
commanded by Captain Clastrier, borrowed of Armelin six dozen
skins of morocco leather, for which he executed a respondentia
bond, binding himself to pay 270 livres and 100 per cent free
from average, on the safe return of the vessel to Marseilles. The
vessel arrived in safety at Cayenne ; Margerel's adventure pro-
cured 960 livres, which he received in paper money. The vessel
was then declared not to be seaworthy. Margerel, not being able
to find a vessel by which he could make a return shipment, was
obliged to convert his money into a bill of exchange upon the
royal treasury, which was never paid.
Armelin filed a petition against him, claiming the 270 livres,
together with maritime and legal interest. Margerel replied that
his contract was conditional, and that he was only to be bound in
case of the safe arrival of the vessel ; that the vessel never did
return, having been declared unseaworthy ; that he had not been
able to find a vessel by which he could ship goods in return for
Marseilles; and that, consequently, according to the 17th article
of the ordinance, hoc titulo, the contract was reduced to the value
of the things saved, to wit, a draft on the royal treasury, which he
offered to deliver up.
On the 27th of June, 1760, a sentence was rendered in favor of
Margerel, by which the plaintiff was nonsuited. From this decision
Armelin appealed. He contended that the goods had been safely
landed before the vessel was condemned as not seaworthy ; and
that, as Margerel had disposed of them according to his own dis-
cretion, at Cayenne, the contract was still in force.

An arret passed in June, 1761, on the report of M. de Corriolis,
deciding, Ist, that notwithstanding the loss of the ship in the
course of the voyage, the contract of gross adventure was in full
existence as to effects landed. 2d. That the borrower, who has
not been able to send returns by another vessel, is obliged to give
an account of the proceeds of the outward shipment. 3d. That
if he do not render this account, he ought to pay the principal,
together with maritime and common legal interest.
The French decision is that if the goods, upon
result of the
which the loan was made, be safely landed, no deduction from the
'
MARITIME INTERSST. 727
maritime interest is to be made, although the vessel do not return

or be lost on her voyage. If the borrower squander the goods or
their proceeds, or dispose of them according to his own pleasure,
instead of shipping them in another vessel, he is bound to return
the sum borrowed with maritime interest entire. This would
seem to be a quite reasonable doctrine ; and, yet, the question may
depend very much upon the precise terms of the contract.
It has been said that maritime interest must be provided in the
bond or contract, or the loan cannot be considered one of bot-
tomry ; and such is the doctrine of some of the American courts
(
Vide Leland v. Medora, 2 Wbodh. and Mmofs B., 92, 107).
This, however, has been thought to be inaccurate; and, indeed,
the contrary has been expressly laid down in the English admi-
ralty courts. Said Dr. Lushington, in a case of unquestioned
authority :
"I am aware that it is not absolutely necessary that a
bottomry bond should carry maritime interest, and that a party
may be content with ordinary interest ; but when the argument
insupport of the bond is that the advance of the money was
.
attended with risk, it is a material circumstance that only an ordi-

nary rate of interest should be demanded. It is impossible to con-
ceive that any merchant, carrying on his business with ordinary
care and caution, would be content to divest himself of all. security
for the loan of his money
on bottomry bond, and ask no
lent
greater emolument than the ordinary rate of six pounds per centj
if the repayment of such a loan was to depend upon the safe arri-
val of the vessel at the port of her destination, after performing such
a voyage " {Ths Emancipation, 1 Bobinson^s B., 124, 130)., Here

it is conceded, at least, that a loan may be made on bottomry at
common legal interest only, althpugh it is very properly suggested

that lenderswould not be likely to take the risk, which is always
implied in a maritime loan on bottomry, without reserving
" marine interest," or as much more than legal interest as will
serve to cover the risk.
It may be repeated that, if the ioterest in the case of a maritime
loan be not expressed in the contract, it will, as a general rule, be
presumed to be included in the principal {The Ma/ry, 1 Paine's
C. C. B., 671). But whole subject of maritime interest and
this
common legal interest in bottomry and respondentia cases will be
reverted to in another place.
CHAPTEE LVII.
WHO MAT BE PAETIES TO A MARITIME LOAN WHEK THE OWNEE 18

BOUlfDBY THE ACTS OF THE MA8TEE OF A VESSEL OF BOTTOMET BT
—
THE MA8TEE THE SAME BTTHE OWNBE OF A VESSEL DIPFEEENOE —
BETWEEN BOTTOMET AND EESPONDENTIA.
It may be affirmed, as a general rule, that every person who has

an interest in a ship or cargo may borrow money at gross adven-
ture as far as his interest is put at hazard, and every person who is
capable of contracting may make a maritime loan. Masters of

vessels may sometimes borrow upon maritime loan on account
of their ownerSj whether it be in the port where the vessel is fitted
out or in the course of the voyage. But the laws of commerce

have established certain rules and regulations in those cases which
it is indispensable to understand.
It sometimes happens that a person is employed to act as the
pilot of the vessel simply, to whom the direction of the voyage
and the conducting of the ship safisly into port is intrusted, while
the owners of the vessel or the cargo place a supercargo on board,
with power to demand freight, make all commercial operations,
and pay the necessary expenses. In that case the captain is, sav-
ing the right of third persons, simply a pilot, and the supercargo is
the master. But usually the functions of the pilot and supercargo
are combined in the captain of the vessel, and then he is the mas-
ter, and the owner is bound by his acts in all matters relating to
the functions of his office.
Pothier observes that " the owners are supposed to appoint a

master to transact the business of the ship only in their absence,
and to do those things which they could not conveniently do
themselves" {Pothier, n. 55, A. ^.). According to this doctrine
the captain can do nothing of consequence but with the approba-
tion of the owners when he is in the port where they reside. Of
course, a more general agency may be appointed to him, but sim-
ply as captain of the vessel, this statement is strictly accurate,
and his powers are thus limited when in the port where the owners
reside.
By the celebrated Ca/rsolito del Mare, it appears that, in the place
of the owner's residence, it is necessary the captain should have his
consent to purchase the necessary rigging of the vessel. And in
POWERS OF THE CAPTAIN. '
729
Hanse Towns, it was provided that, " in
an ancient ordinance of the
the place of the owner's residence,no person shall cause repairs to
be made to a ship, purchase sails, cordage or any other thing for
her, nor borrow money on bottomry, without the consent of the
owner, under penalty of being answerable to it himself" And

again, that " those who lend on bottomry to the master at the
place where the owner resides, without his consent, shall not have
any hen or privilege, except only on the portion of interest which
the captain may have in the vessel and freiglit, even although the
contract was made for the purpose of obtaining repairs or victuals
for the vessel."
It results from these statements that the contracts of bottomry,

made by the captain in the place where the owner resides, with-
out his consent, are not binding upon him, or rather that the
lender is not entitled to hypothecation or privilege but upon the
master's share, which alone is liable, when the loan is made by
the master in the port where the owner resided.
But where the vessel is away from the port where the owner
resides, the master has power to loan money upon bottomry in case
money is needed and cannot otherwise be obtained and in Europe
;
contracts of bottomry are at present seldom made except by tlie

master of the vessel in a foreign port. It has been often held by
the courts of the United States that, to make a hypothecation given
by the captain of the vessel valid, the necessity of raising the
money inthis way must be shown. So that if such an instrument
he executed in a port where one of the owners resides, it follows
that the same would be void and such is the express holding of
;
the courts {The Lmmiia v. Barclay, 1 Wash. C. C. JR., 49).

And the Supreme Court of the United States have held that a
hypothecation of the ship, by the master, is invalid, unless it is shown
by the creditor that the advances were necessary to effectuate the
objects of the voyage or the safety of the ship, and that the supplies
thus necessary cotdd not be procured upon the owner's credit or with
his funds at the place. And it was declared to be incumbent upon
the creditor who claims on a hypothecation to prove the actual
existence of the necessity of those things which give rise to his
demand ; and that from his own showing or otherwise, it
if,
appears that he had funds in his hands of the owners, which might
have been applied to the demand, and he has neglected or refused so
to do, he must fail in his claim. If various demands are mixed up
92.
730 I'-AW OF MARITIME LOANS.
in his bond, some of which would sustain the hypothecation, and

some not, the court declares it to be his duty so to exhibit them to
the court that they may. be separately weighed and considered.
The court further declared that the master of the ship is the
confidential servant or agent of the owners, and they are bound to
the performance of all lawful contracts made by him, relative to
the usual employment of the ship and the repairs and other neces-
saries furnished for her use. But that the authority of the master
is limited to objects connected with the voyage and if he tran-
;
scend the prescribed limits, his acts become, in legal contemplation,

nullities.
It was held, however, ihsA, a ionafide creditor who advances his
money to relieve a ship from an actual on account of debts
arrest,
which are a lien upon him, may stipulate for a bottomry interest,
and the necessity will justify the master, who has no other suffi-
cient funds or credit, in giving it but that a mere threat to arrest
;
the ship for a pre-existing debt would not be a sufficient necessity

to justify the master in executing a hypothecation.
Mr. Justice Story delivered the opinion of the court, and, among
other things, said :
" The law in respect to maritime hypothecations
is, in general, well settled. The master of the ship is the confi-
dential servant or agent of the owners, and they are bound to the
performance of all lawful contracts made by him, relative to the
usual employment of the ship and the repairs and other necessa-
ries furnished for her use. The rule is established, as well upon
the implied assent of the owners as with a view to the convenience
«f the commercial world. As, therefore, the master may con-
tract for. repairs and supplies, and, thereby, indirectly bind the
owners to the value of the ship and freight, so it is held that he
may, for the like purpose, expressly pledge and hypothecate the
ship and freight, and thereby create a direct lien on the same for
the security of the creditor. But the authority of the master is
limited to objects connected with the voyage, and he transcend

if
the prescribed limits, his acts become, in legal contemplation, mere

nullities. Hence, to make a bottomry bond executed by the master
a valid hypothecation of the ship, it must be shown by the creditor
that the master acted within the scope of his authority or, in ;
other words, it must be shown that the advances were made for
repairs and supplies necessary for efiectuating the objects of the
voyage, or the safety and security of the ship ; and no presump-

s
POWERS OF TSE CAPTAIN. 731.
tion should arise that such repairs and supplies could be procured
upon any reasonable terms with the credit of the owner, inde-
pendent of such hypothecation. If, therefore, the master have
sufficient funds of the owner within his control, or can procure
them upon the general credit of the owner, he is not at liberty to
subject the ship to the expensive and disadvantageous lien of an
hypothecatory instrument " {The Aurora, 1 Wheat. JR., 96 ; am,d

vide The Boston, ^latchford & Howlcmd^s Adm. JR., 309).
A similar doctrine has been laid down by the Circuit Court of
the United States, In an important case it was held that, where
money has been advanced on the personal credit of the master or
owner and the vessel had performed a subsequent voyage, a
hypothecation by the master to secure the debt cannot be supported.
And it was declared that the fact that th6 advances were necessary
and were made on the security of the vessel, are not, in any
instance, to be presumed. And it was further held that no officer
of the vessel can legally make a hypothecation except the actual

master ; and that it constitutes a conclusive ground of objection to
the validity of such an instrument that the master, by whom it
was given, had, before the advances were made and the bond given,
resigned his command and another master had succeeded to it {Wal-
den V. Chamberlain, 3 Wash. G. C. JS., 290 Surry v. The John ;
and Alice, 1 ib., 293 Patton v. The Randolph, Gilfin^s R., 457).
;
But it has been held by the District Court of the United States
for the southern district of New Tork that a master, appointed by
the American consul in a foreign port, has authority to execute a
bottomry bond in a proper case {The Jacmel Packet, 2 Benedict

D. G. R., 101; vide Fox v. Holt, 36 Conn. R., 658).
The Supreme Court of the United States have recently decided a
case, in which the nature of the lien allowed by the maritime law
upon a vessel for repairs and supplies ordered by the master while
in a foreign port, upon the credit of the vessel, the circumstances
upon which such lien arises, and the principles by which it is
governed, were elaborately considered and stated, and the doctrine

declared that, in the case of a lien asserted against a vessel sup-
plied or repaired in a foreign port, necessity for credit must be
presumed, where it appears that the repairs and supplies for which
a lien is set up were ordered by the master, and that they were
necessary for the ship when lying in port, or to fit her for an
intended voyage ; unless it is shown that the master had funds, oi
that the owners had sufficient credit, and that the repairer, fur
nisher or lender knew those facts, or one of them, or that such
facts and circumstances were known to them as were sniJicient to
put them on inquiry, and to show that if they had used due dili-
gence they would have ascertained that the master was not
authorized to obtain any such relief on the credit of the vessel.
Mr. Justice Clifford delivered the opinion of the court, and,
among other things, observed :
" Ports of Sta,tes, other than those
of the State where the vessel belongs, are, for that purpose, con-
sidered as foreign ports, and the authority of the master in con-
tracting for repairs and supplies is not confined to such as are
absolutely or indispensably necessary, but includes, also, all such
as are reasonably and proper for the ship and the voyage.
fit
When such repairs and supplies are reasonably fit and proper, the
master, if he has not funds, and cannot obtain such on the personal
credit of the owners, may obtain the same on the credit of the
ship, either with or without giving a bottomry bond, as necessity
shall dictate. Reasonable diligence in either event must be exer-
cised by the merchant or lender to ascertain that the repairs and
supplies were necessary and proper, as the master is not authorized
to hypothecate the vessel unless such was the fact, within the
meaning of the maritime law " {The Lulu, 10 Wallaces R., 192,
200, 201).
And in another case, decided by the same court and at the same
term, the same doctrine was reaffirmed. Mr. Justice Clifford also
delivered the opinion of the court in this case, and, in the course
of his opinion, said :
" Controversies respecting such liens usually
arise in cases where the repairs and supplies were ordered by the
master, without any express directions from the owner; and in
such cases the repairer or furnisher must prove affirmatively that
the ship needed such repairs and supplies, as the authority of the
master in such a case is implied from the necessity for the repairs
or supplies, the want of funds for that purpose, the inability to
procure the same, and the absence of the owner.
" Where it appears that the repairs and supplies were necessary
to preserve the ship in port, or to enable her to proceed on her
voyage, and that they were made and furnished in good faith, the
presumption is that the ship, as well as the master and owner, is
responsible to those who made the necessary advances and it ; is
clear that the necessity for credit must be presumed where it

POWERS OF TBE CAPTAIN. 733
appears that the repairs and supplies were ordered by the master,
and that they were necessary for the ship, unless it is shown that
the master had funds, or that the owner had sufficient credit, and
that the repairers, furnishers and lenders of the money knew those
facts, or one of them, or that such facts and circumstances were
known to them as were sufficient to put them upon inquiry, and

to show that if they had used diligence they would have ascer-
tained that the master was not authorized to obtain any such
relief on the credit of the vessel.
" Subject to these conditions, the master, in the absence of the'
owner, is^ rested with the authority to order necessary repairs and
supplies ; but it is no objection to his authority that he acted on
tie occasion under the eirpress ins,tructions of the owner; nor will
the lien of those who made the repairs and furnished the supplies
he defeated by the fact that his authority emanated from the
owner instead of being implied by law.
" When the owner is present, the implied authority of the mas-
ter for that purpose ceases ; but if the owner gives directions to
that effect, the master may still order necessary repairs and sup-
plies ; and if the ship is at the time in a foreign port, or in the
port of a State other than that of the State to which she belongs,
those who make the advances will have a maritime lien, if they
were made on the credit of the vessel " {The Kalorama, 10 Wal-
lace's R., 204, 212, 213 ; and vide The Steamer Patapsco, 48
Em. Pr. P., 301).

It may be affirmed, in general terms, that when the master has
the authority to create a lien upon the vessel for repairs and sup-
phes, he may by means of a bottomry bond.
exercise this authority
The Court of the
Cfl'cuit United States for the third circuit, at
an early day, held that, where the original voyage is broken up
.
abroad, the captain may borrow money upon bottomry to enable
hun to return home. It seems that the authority to hypothecate

extends to any voyage which the master is authorized to make.
In general, a consignee cannot take a bottomry bond from the
master to secure his advances but cases may exist where the con-
;
signee is not bound, more than any other lender, to advance for
repairs, without taking the ship as security for a loan on maritime
interest(Crawford v. The William Perm, 3 Wash. G. C.R., 404;

videReade v. The Commercial Insurance Co., 3 Johns. R., 352).
Indeed, it seems to be decided that, in case of necessary repairs.
: ;
the master may sell part of the cargo, or hypothecate it. If he

has money on board belonging he is not bound tc
to shippers,
apply it to the ship's necessities, before borrowing on bottomry,
at least if not equal to the amount of repairs but the law invests
;
the master in such cases with a large discretion upon the subject.
But seems that where the master has sufficient money of the
it
owners of the vessel, he cannot borrow on bottomry ; nor can he

legally do so if he has sufficient money of his own on board the
vessel{The Packet, 3 Mason's S., 255 The Lammia v. Ba/rclay,
;
1 Wash. C. G. R., 49 Bueher v.. Gonynghami, 2 Pet. Adm. R.,

;
295). But the master of a vessel in a foreign port acting in the

character of agent is limited in his power, as before shown, and
can only pledge the vessel in case of necessity {The Mary, 1
Paints 671).
C. C. JR., And indeed, it has been held that a
bottomry bond can be given by the master only under circum-
stances of great distress, and when he is destitute of other means
and only in a foreign port {Twrmo v. The Ma/ry, Be^s R., 120
Sloam. V. The A. E. I., lb., 250).
The authorities are uniform in holding that, to authorize a
bottomry bond by a master, it must be given to enable the vessel
to proceed on her voyage, and to leave a port where she is
detained for iêcessary repairs, or for claims upon her, and has no
funds, credit or other means of getting money {Gibbs v. The
Texas, Craihe's R., 236 Burke v. The M. P. Rich, 1 GUffarWs
;
E., 308).
The follovring propositions in respect to maritime hypotheca-
tion by the master of a vessel have recently been laid down by
the Supreme Court of the United States
1st. Liens for repairs and supplies, whether implied (fr express,
can be enforced in admiralty only upon proof made by the credi-

tor that the repairs were necessary, or believed upon due inquiry
and credible representation to be necessary. 2d. Where proof is
made of necessity for the repairs and supplies, or for funds raised
to pay for them by the master, and of credit given to the ship, a
presumption arises, conclusive, in the absence of evidence to the
contrary, of necessity for credit. 3d. Necessity for repairs and
supplies is proved where such circumstances of exigency are shown
as woi;ild induce a prudent owner, if .present, to order them, or to
provide for the cost of them on the security of the ship. 4th. The
ordering, by the master, of supplies or repairs xipon credit of the
POWERS OF THE CAPTAIN. 735
ship, is sufficient proof of such necessity to support an implied

-hypothecation in favor of the material-man, or of the ordinary
lender of money, to meet the wants of the ship, who acts in good
faith. 5th. To support hypothecation by bottomry, evidence of
actual necessity for repairs and supplies is required ; or if the fact
of necessity be left unproved, evidence is required of due inquiry
and of reasonable grounds of belief that the necessity was real
and exigent {The Grcvpeshot, 9 Wallaois B., 129).
But it has been neld that, in order to constitute a sufficient
fouadation for a bottomry bond, the necessity for the supplies
furnished need not have beeii so urgent that the vessel must have
been lost to the owner without them. It is sufficient if, as mat-
ters then stood, they may, in th4 exercise of a discreet judgment,
have appeared to be reasonable and proper for the interest of the

owner {Thomas v. Gettmgs, Tcmey's G. 0. R., 4/12; vide The
Jacmel Packet, 2 Benedicts D. G. B., 107 The Kathleen, lb., ;
458 The Yuia, 4 Blatohford's G. G. B., 352).

;
As has been before suggested, the master can only hypothecate

the vessel in a foreign port ; but for this purpose it has been held
that the ports of the different American States are foreign to each
other The M.
{Burke v. P
Bich, 1 Cliff. B., 308). And it has
been held that where the necessity for the repairs have been shown
in case of bottomry by the captain, it is for the claimant to show
that the money could not have been obtained otherwise than by
bottomry {The Kathleen, 2 Benedict's D. G. B., 458).

A vessel having entered a port of distress, necessary repairs were
made upon her on her credit ; and, afterward, it being impossible
to procure funds in any other way, a loan was made on bottomry,
and the money wasapplied to paying for the repairs. The court
held that was no objection to a recovery on the bottomry bond,
it
that the repairs were made before the loan was effected. And it
was fiirther held that the bill of a stevedore for services rendered
in ascertaining the repairs needed by a vessel was a proper
charge upon the vessel, upon a libel to recover on a bottomry
bond ; and, also, with respect to a charge for commissions in pro-
curing the loan, it being possible to raise the loan only through ah
agent {TheTuba,^ Blatch. G. G. B., 352; and vide The Kath-
leen, supra).
The consignee of a steamship arriving in a foreign port toolj
the agency for the vessel and she having been attached, and it
;
"
786 LAW OF MARITIME LOAMS.
being neoessaiy to relieve her from that attadnnent, so that she

might sail as advertised, the master executed a bottomry bond to
the coasignee for the amount of the attaching claim, and also for
advances. The Circuit Court of the United States for the eastern
district of New York held that, inasmuch as the advances had
been made without any agreement or reasonable expectation that
they were to be secured by bottomry, the bond was invalid as to
that item. That, although the design of the bond might suffice to
sustain it, the master did not communicate with the owner,
yet, as
which he might have done by telegraph, he had no authority, and
the bond was invalid {The Circassian, 3 Benedie^^ D. 0. R., 398).
The Oonsolito del Mare says that " the owners of the ship ought
to contribute to the fitting out of the ship, according to their
respective shares. some of them are unwilling or unable to fur-
If
nish their proportions, the captain may compel them, judicially, to
do what is right as he may also borrow money on their account,
;
and pledge their proportions for the payment of the sum borrowed "
{fionso. del Ma,re, oh. 46). And the ancient Teutonic Ordinance
says that " where a merchant delays famishing his part, the cap-
tain may borrow money on maritime loan and pledge the part of
the recusant." And, again, it is said that " the captain may bor-
row at bottomry for those who are unable or unwilling to contri-
bute their proportions of the expense of fitting out the vessel
{Tent. Ord. Arts, 11, 59). This is laid down as the rule where the
vessel belongs to two or more owners.
The owner of the vessel as well as the master may pledge her
by bottomry in a foreign port and in this country bottomry bonds
;
are frequently made by the owner himself in the home port. In

one case it was held that a bottomry bond, given by the owner to
the. master to secure certain advances and wages due him was
valid {Miller v The Heheooa, Be^s R., 151).
There are cases m which an agent may take a bottomry bond,
A ship, damaged on leaving New York, returned to that port. M.,
who had acted as agent for her owner, gave the owner notice of
the accident, and of his intention to get the ship ready for sea
again as soon as possible. The owner communicated with M. and
with the ship's master, but provided no funds for the expenses.
There was no evidence that the owner or master had credit at
New York. When the ship was ready to sail, the master, not
being able to pay for the expenses, advertised for a loan on bot-
BOTTOMBT BT THE OWNER. 737
;omry ; and M.'s offer being the lowest, the bond was given, and
the court held that the bond was valid {The Oriental, 2 Eng. Law
md Ef. R., 546).
Ill a case which was decided by the Circuit Court of the United
States for the second circuit, many years ago, and which has been
before referred to, it was held that the owner in a foreign port,
having an absolute control over his property, may pledge the ves-
sel for money to purchase a cargo, and thereby create an admiralty
lien. The facts of the .case were these In N"ovember, 1822, the
:
owner of a vessel in Connecticut gave a bill of sale of her in the

nature of a mortgage, but was suffered to remain in possession
and act as absolute owner, and her register and all her papers
remained unaltered. In July, following, he gave a bottomry bond
for money advanced to purchase a cai'gb for the vessel in the West
Indies, without notice of the mortgage to the lender. The court
held that, upon common-law principles, the claim of the lender was
to be preferred to that of the niortgagee, and affirmed the right of
the' owner to execute a valid bottomry bond for the purpose and
under the circumstances appearing in the case {The Mary, 1
Paim's 0. C. R., 671).
A similar doctrine was laid down by the Supreme Judicial Court
of Massachusetts at an early day. A bond was given by the owner
for money, to run on bottomry on a ship and her freight for three
êars at twelve per cent interest yearly. The obligor was to pay
the obligee, from tihie to time, half the ship's gross earnings, and
to make other payments, if he chose, on the bond, and the interest
was to cease on the amount of principal so paid the obligee Was ;
to retain all payments so made, whether the ship should be lost or
Qot, and the ship and freight were to stand hypothecated for the
anpaid balance and at or before the end of three years, the obli-
;
gor was to pay the remaining sum due, with the stipulated interest,
ieducting such sums as the obligee would be held, by law, to pay
for general average, etc., during the three years, as if he had been
m underwriter ; and in case of a total loss by perils insured against

in a form of policy referred to, the obligor was topay the obligee
mch salvage as he would be entitled to, if he had been the under-
writer in such policy and the obligor was to pay the obligee half
;
ihe gross earnings not before paid over, deducting such sums as
;he obligee would be held to pay for general average, etc., as before
mentioned. The obligor also gave a ©ortgage of real estate tc
the obligee to secure fulfillment of the conditions of the bond.

The court heldthat the bond was valid and the fact that the
;
obligeehad attached the ship before the three years elapsed on

another debt of the obligor, whereby the latter was prevented
from employing her, was held not to excuse him from performing
the conditions of the bond, it being his own fault that the other
debt was not paid. It may be of some importance to note this
latter holding {Thorndike v. Stone, 11 Pick. E., 183).

The master would have no right to pledge the vessel for advan-
ces to piirchase a cargo. But there is no such limitation upon the
authority of the owner ; he has the absolute control over his pro-
perty, 'and has a right to pledge his vessel for money borrowed for
any purpose, to be applied to repairs, outfits or other necesaries, or
ô the purchase of a cargo {The Prniama, OllcotCa G. O, P., 343).
There seems to be no rule that, in order to constitute a bottomry
bond as such, in the sense of the maritime law, it is necessary that
the money should be advanced for the necessaries of the ship, or
for the cargo or for the voyage. Where such bond is given by
the master in that capacity, it must, in order to have validity, be
for the ship's necessities, for the implied authority of the master
extends no further. But where the bond is given by the owner, as
such, he may employ the money as he pleases. It is sufiicient that

the money is loaned upon the bottom of the ship at the risk of the
lender for the voyage (The J)raco,-2 Smnner's P., 157 ; Eneas v.
The Minerva, 39 SunSs Merchant^ Magazine, 73).

Cha/rlotte
A
party who gives a bottomry bond upon a ship in the name
and character of master, but was at the time or afterward became
an owner, will not be permitted to restrict the rights of the bot-
tomry holder, when he comes to enforce his bond, to those con-
ferred by a bond made by the ship-master as such. Such party, it
seems, takes all, the benefits under the bond which would have
accrued had it been executed avowedly by the owner. The holder
of the bond is, upon the othpr hand, entitled to every advantage
derivable from the fact that it was made by one possessing not
only the authority of agent, but that of principal also {The Pomama,
Oloott's a C. P., 343).
One part owner cannot take from the master a bottomry bond
to bind another owner's share for repairs {Patton v. The Pandolph,
Gilpin's P., 457).
Either the owner or the master of a ship may bind her by a
BOTTOjmr AND BE8P0NDMNTIA. 739
direct hypothecation for repairs or supplies made or furnished in a

foreign port, although a note or other obligation is given for the
demand {The Hilarity, Blatchford & Sowland's Ad/m. R., 90).
And a bottomry bond given by the owner is not rendered invalid
by the fact that part of the loan consists of a bill of exchange
drawn by the bottomry lender on the home port of the ship {The
Panarm, OlcoWs 0. C. R., 343).
It may be stated that the terms bottomry and respondentia are
often confounded as meaning the same security, but there is an
essential difference between the two securities. There are three

descriptions of the usura marina described in the books. 1st.
Where the lender advances money on the ship, and this is called
bottomry, and is to be repaid with certain interest in case the ship
perform her voyage safely, in which case the ship itself is pledged
to the lender as a security. In general, however, a bottomry bond
binds not only the ship but her whole earnings. But a distinction
is made between advances on freight and other advances. Sums
advanced on account of freight must be deducted in preference to
the bottomry {Freight Money of the Anastasi'a, 1 Benediofs D. G.
S., 188). The true definition of a bottomry bond, in the sense of
the general maritime law and independent of the peculiar regula-
tions of the positive codes of different commercial nations, is, that
it is a contract for a loan of money on the bottom of the ship at
an extraordinary interest upon maritime risks, to be borne by the

lender for the voyage or for a definite period {ITie Draco, 2 Sum-
ner's G. G. R., 157). The contract of bottomry differs essentially
from a loan with security, and is inconsistent with the existence of
a lien such as is implied by the marine law to secure advances
made to a master, in a foreign port, to enable him to make

necessary repairs {The Ann Gurus' C. G. R., 340).
C. Pratt, 1
The essential difference between a bottomry and a simple loan
is, that in the latter the money is at the risk of the borrower,
and must be paid at all events. In the, former, it is at the risk of
the lender during the voyage, and the right to demand payment
depends on the safe arrival of the vessel. The perils of the sea
being at the risk of the lender, gives the right of reserving any
rate of interest agreed upon, without incurring the penalties of
usury {The Ma/ry, 1 Paine' s G. C. R., 671 ; The AtUmtio, 1 New-
lury's Adm. R., 514; The William and Emelvne,, Rlatch. d Hov!.
Adm. R., 66).
2d. Where money is advanced to be repaid in case the cargo

arrives safe at the place of destination, and this is called respon-
dentia, in which case, the cargo is And'
pledged to the lender.
3d. Where money advanced to be repaid on the event of a
is
certain voyage terininating favorably, but where the money is not

advanced on the security either of ship or goods, and where it is
immaterial whether the borrower have or have not any interest in
either.
These are all maritime loans, but they depend upon diflferent
securities. In case of bottomry, the lender's security is upon the

ship,and in case of respondentia it is upon the cargo, but the
risksare the same, and the terms of the obligation are alike.
Bottomry securities are invariably entered into by the owner or
the master of the vessel, while those of respondentia are usually
made by the owner of the cargo.
In case of necessity the master is authorized to hypothecate the
cargo ; that is to say, when he is not able to procure the requisite
advances in case of necessity, upon the security of the ship alone,
he may sell a part of the cargo, or hypothecate the whole. And
it has been held that, if the master has money on board of the
ship belonging to shippers, he is not bound to apply it to the
borrowing on bottomry, at least if unequal

ship's necessities before
to the amount necessary to be realized. The law invests the mas-
ter with a large discretion on the subject. Said Mr. Justice
Stoiy " I am not prepared to say that there is any absolute rule
:
which compels the master at all events, and under all ciream-
stances, to make use of moneyed coin of third persons, which he
happens to have on hand, in preference to any other mode of
proceeding. The general principle is, that he is bound to act with
a reasonable discretion. He is to get the necessary repairs done
at as little sacrifice as is practicable. If he has money on board,
and the use of that will be the he ought to resort to
least sacrifice,
it in the first instance. But there might be cases in which the

use of such money would be the greatest sacrifice that could be
made, and the whole object of the voyage might be thereby
defeated. * * * In all these cases, therefore, much must be
left to the master's discretion, and he must exercise it conscien-
tiously for the general interest. If he acts iona Jide and with
reasonable care, the rights of the parties are bound up by his acts,
although it should afterward be found that he had committed an
BOTTOMRY AND RESPONDElfTIA. 741
error in judgment, and might have acted more beneficially in

another manner {The Ship' Packet, 3 Mason! s 0. 0. B., 255, 258,
259). But where the goods of a shipper are thus disposed of by
the master, the owner has a lien, by the general maritime law,
upon the ship and freigfit for reimbursement. The Consolito del
Ma/re {oh. 106, 106) recognizes the principle and in general the
;
money so lent upon a forced loan is deemed to be in the nature

of bottomry {The GratiPudine, 3 Hoi. JR., 240, 264 ; Belgm v.
The Shop Bawibow, Bee^s Adm. B., 11&). This doctrine is
unquestioned.
Doubtless a lender on bottomry is not bound to see to the appli-
cation of the money he advances, but it is clear that he must
make due inquiry to ascertain that an unprovided necessity exists,
aiid that without money so advanced the ship cannot proceed on
her voyage ; accordingly, where, without such previous inquiries,

advances were made on bottomry to the master of a ship which
had arrived with a considerable cargo in a foreign port, and
remained there two months, the repairs, which were unimportant,
having been and her stores furnished before the
completed,
advance, although there was no fraud on the part of the bond-
holder, yet, as there was no real necessity for borrowing at mari-
time interest, the bond was not supported {The Orciia, 3 Sagg.
Adin. B., 75). But where repairs are necessary, it is not
incumbent on the foreign merchant, before he advances thei money
on bottomry, to calculate the expediency of incurring the eixpense
of them {TheVibilia, 1 Bob. B., 1).
The two securities of bottomry and respondentia, are in many
of their essentials substantially alike, and they are, therefore,
oftentimes considered as classed together.
742 LAW OF MARITIME LO4NS.
CHAPTEK LYIII.
WHAT MAY BB PLEDGED IN A MAEITIMB LOAN —

WHAT MAT BE LENT
AT MAEITIME RISK —
LOAN, HOW TO BE EMPJ-OTED CONSEQUENCE IF
—
THEEE HAPPENS TO BE NO EISK THE CASE OP A FEATJDULENT BOE-
EOWEE —PEOOF OF THE SHIPMENT LOAN, HOW EMPLOYED.
As a general rule, everything which, can be insured may be the

subject of a contract of a maritime loan, provided that the mari-
time risk and the subject of it be real on both sides, and that there
be nothing repugnant to the nature of the contract.
The contract on marine loan on the cargo affects not only the
goods on board, at the time of departure, but all which may
be taken on board for account of the borrower during the voyage.
If the contract be for the outward and inward voyage, it covers
the returns for account of the borrower. 'But it has been held by
the French admiralty courts, and such doubtless is the law, that
the lien does not attach upon merchandise which the borrower
voluntarily, and without being compelled by necessity, ships in
another vessel. To the risk of this merchandise the lender is a
stranger, even though it be the returns of the jSrst cargo, and
hence no substantial reason exists why the lien should attach upon
such merchandise thus circumstanced. It is enough, however, that
the subject of the risk is on board the vessel at the time of the
accident. If it is not, the borrower is not released from his per-
sonal obligation by the loss.
seems by the ancient .usage that " money may be lent at bot-
It
tomry on the body and keel, the rigging and apparel, arms and
and upon the whole or part of the
victuals, jointly or separately,
cargo, for the entirevoyage or for a limited term." It has been
suggested, and very properly, too, that the words jointly or sepa-
rately should be placed at the end of the article because nothing
;
prevents a person from borrowing jointly on the ship and cargo,

ifhe has an interest in them.
When the captain or owners of the vessel ship goods and mer-
chandise for their own account, they may take up money at mari-
time risk on the vessel and goods jointly because they have the
;
disposal of both, and the lender thereby has a more extensive lien.
To borrow money at maritime risk on freight to be carried by
the ship, is not sanctioned. M. Yalin observes that the lender
"
WMAT MAT BE LOANED. 743
would be at the mercy of the borrower, who would make no

exertions to save freight when
would yield no advantage to him.
it
He adds that it is lawful to borrow money on freight al/ready

reserved; that is to say, to borrow for the purpose of paying a
stipulated freight, which is to be paid at all events, whether it be
for the transportation of merchandise or for a mere passage. The

Guidon de la Mer permitted the master " to take up as much
money as the amount of the primage and that money which was
promised to him in the charter-party, in consideration of the
advances which he may make to the crew. The advances to sea-
men is one of the expenses of equipment and outfit. It may,
therefore, be the subject of insurance, and of a contract of mari-
time loan for the benefit of those who fit out and equip the vessel
{Quid, de la Mer, ch. 19, art. T).
It would seem that seamen are, at liberty to borrow money on
merchandise laden for their own account, because they are con-
sidered jwo hoc vice as owners. They require no permission from
any person in that case. But as mariners are restricted from insur-
ing their wages, so they may not borrow money at maritime risk
on that fund {Emerig, des. Ass., ch. § 10). The reasons for
8,
this law flow from the necessity of securing the attention of
mariners to the safety of the ship, and these reasons would seem to
apply with equal force to both contracts.
Money procures those things which persons desire to send out
to sea, and without that necessary article a vessel could not leave
her port. This is the reason why privileges so extensive are given
to maritime loans. But when the vessel has put to sea, the public
interest is subserved, and it is not necessary to grant particular
privileges to an enterprise already executed. Still, after the
departure of the vessel, nothing prevents the borrower from con-
tracting to pay the money borrowed out of the interest which he
has at stake; but this indication of a particular fund does not
any lien upon the fund thus pointed out. The
give the creditor
money cannot truly be termed trajeetitia but when it has been
employed in the actual purchase of the goods shipped or has
enabled the borrower to purchase them.
With respect to the article which may be lent at maritime risk,
there seems to be no doubt that merchandise or other effects may

be the subject of a maritime loan as well as money. The civilians
require only that the effects lent should be designated by weight.
744 I'AW OF MAniTIMM LOANS.
nuniber or measure ; and that that should be of such a nature, .
according to the custom of the place, that they may be considered,

or be intended, for sale by the borrower, who becomes
the owner
on condition of paying the and a maritime interest in case
price,
of the safe return of the vessel {Sty.pmannua, pwrt 4, ch. 2, n. 18).
Pothier says " In order to form a contract of maritime loan,
:
there should be a sum of money borrowed by one from another

on conditions specified in the contract. It is not meant that
nothing but money may be the subject of this contract; for this
contract includes that of mutuMm, to which is added an agreement,
by which the lender takes upon himself the risks he may require ;
all those obligations which are contained in the contract of
mutuv/m ; that is, of all those qucB pondere, nutnero eb mensura

cohstomt, et quae usu oonsv/muntur. But it is not usual to lend
anything except, money in a maritime loan " {Pothier, n. 8, A. t.).
The contract of rmituum, or loan of things to be restored in

kind, referred to by M. Pothier, is a covenant by which one gives
to another a certain quantity of the kind of things that is ^ven by
number, weight and measure, siich as money, corn, wine, etc., on
condition that the borrower shall restore, not the same individual
thing he borrowed, but as much of the same Mad and of the like
quality.
But it seems well settled by the authorities that everything may
be lent in a maritime loan as well as money; and it would seem
that this contract may be united with another, and that the con-
tract is susceptible of any modifications which the parties may
think proper to ( make
Vide Emerigon on Marit. Looms, 139-141).
And it seems, from the same authority, not only that any other
article than money may be the subject of a maritime loan, but
that it is even permitted to, stipulate that the lender shall continue
tobe the owner and at his risk in which case,

of the articles lent ;
two contracts would be embraced, which, being united, form a

hi/ring at maritime risk.
It has been shown, that maritime risk is the essence of the con-
tract of maritime loan. It is necessary, therefore, that, the money
should be actually applied to the purpose for which it was bor-
rowed. If it be not so employed there is no risk, and, hence, the

contract can have no existence as a maritime loan, and. may be
rescinded. And, yetj it has been declared by judicial authority
that the lender on bottomry is not bound to see to the application
;
MUST BE A BISK. 745
of the money he advances, although he must make due inquiry

to ascertain that an unprovided necessity exists for the advance,
and that without it the ship cannot proceed oh her voyage (
Vide
The Oralia, 3 Sagg. Adm. M., 75). The non-departure of the
ship gives an eqaal right, according to circumstances, to the
rescinding of the contract ; but after the risk is once commenced,
the contract should have every effect which the circum&tamces will
warrant.
The maritime interest is the price of the risk ; and if there has
been no risk it follows that no maritime interest can be due to the
lender. Says M. Pothier :
" Suppose there has beeii no risk in
consequence of the voyage having been broken up ? In this ease,
the boiroower would be obliged to return the money lent to him
but he would not be obliged, also, to pay the sum which he
had promised by way of maritime interest. For the maritime
interest being the price of the risk which the lender ought
to encounter, he would not be entitled to maritime interest
for the effects upon which the loan was made, if they never had
been at hazard and he cannot be entitled to the price of a risk,

;
who never has incurred it. The condition, that there shall be
risks to be encountered,is one that is necessarily included in a
contract by which the borrower has agreed to pay the price of

a risk " {Pothier, n. 3S, h. t.). And, again, the learned author
remarks " The maritime profit is not due to the lender, even
:
in cases where the voyage has been broken up by the act of the
borrower. For, let the case be what it may, it is enough that the
voyage was broken up the lender has run no risk for which he
;
would be entitled to a maritime interest he cannot dema,nd the

;
price, which he never encountered" {Pothier, n. 39).

of a risk
And Valin says " We do not make any difference between, the
:
borrower in a maritime loan, who has had it in his power to load

'the ship, and him who could not do it. Let the lender have acted
with ever so much good, faith, we must always recur to principles
for the solution of any question on the subject for the nature of ;
the contract is such, that, the lender could not be entitled to any
maritime profit but as far as, he has incurred the risks to which
the contract is subject. In the case of not lading the vessel, he
has run no risTc; and, thereforej no maritime profit can have been
earned. Whether the borrower was able to ship, is of no conse-
quence" {Valm,art.l6i,h,t.,p.lS).
94
746 I>AW OF MARITIME LOANS.
In those cases where the voyage is broken up before the com

mencement of the risk, the borrower is bound simply to return the
amount of the loan with legal interest, according to the custom of
the place.
It sometimes happens that the borrower fraudulently obtains
more money than the which he gives will adequately
security
cover. Upon this subject,' the French ordinance forbade " persons
to borrow by maritime loan upon the hull and keel of the ship, or
upon the cargo, beyond their value, under pain of being obliged,
in case of fraud, to pay the whole sum, notwithstanding the loss
or capture of the vessel." According to this, he who has fraudu-
lently borrowed money, by maritime loan, beyond the value of
the thing at risk, must pay the whole sum borrowed, notwithstand-
ing any accident. And it is well settled by competent anthority
that, if the ship arrive in safety, the fraudulent borrower cannot
avoid the payment of legal interest. His deceit imposes silence
upon him, and he is not allowed to demand that the contract be
rescinded [Emerig. Traite des Assuram,ces, ch. 16, § 5). In such
case the owners would be obliged to pay the money with maritime
interest for sums borrowed by the captain at maritime risk in the
course of the voyage, because they are responsible for his acts, and
they represent him at least until they abandon the ship and freight.
From some rules which have been laid down in respect to the
proof of the shipment of the goods on which the money was loaned,
it has sometimes been contended that it is lawful to borrow when
the thing is already at risk and that in case of accident it is suffi-.

;
cient to prove that the subject of the risk was on board when the
loss happened. This is the rule as to insurers, but not as to
lenders at maritime risk, who cannot be considered in that char-
acter, unless they have made a loan to effect the equipment, to
purchase the cargo, or to supply the necessities of the ship during
her voyage. The nature of the contract and good faith will not
allow that the interests of third persons should be injured without
a good and lawful cause ; such, for instance, as those of the lenders
for the equipment of the ship and furnishing the cargo, which
would be thus injured by a concurrent and not equally meritorious
claim, and those of the insurers, who, in case of loss, would be
deprived by an intruder of this proportion of the effects saved.
The French Ordinance de la Marme declares that " the
person who shall have borrowed money by maritime loan
iO^JV, HOW, EMPLOYED. 747
on goods, shall not be released from his contract by the loss

of the ship, .unless he prove that he had goods on board to
the amount of the sum borrowed" {Ordmance, a/rt. 14, h. t.).
M. Yalin remarks that, in such a case, the proof of pro-
perty should be the same as in cases of insurance {Em&rig.
Traite des Assit/rcmces, ch. 11). But it suiSces if the borrower
prove property on board to the amount of the sum borrowed, as
before stated, without being obliged to run the risk of any portion
thereof ; for borrowers are frequently men of no fortunes and have
nothing but their industry to depend upon. Targa, however,
expresses the opinion that the borrower should run the risk of a
third part of the thing borrowed {Ta/rga, ch. 33, n. 16, ^. 148).
But this seems not to be correct.
The Circuit Court of the United States for the first circuit, held
by Mr. Justiae Story in 1826, made a decision involving this ques-
tion to a certain extent. In a respondentia bond for $10,000 on
goods, it was stipulated that the vessel should carry' goods to the
value of the amount lent. The vessel was lost on the voyage, hav-
ing goods on board to the value of $9,000 only. The lenders
seized on the bond, and claimed payment of the amount loaned,
because the full amount of goods were not on board. The court
held that this act was not a condition precedent, the omission of
which was sufficient to justify a recovery for the whole loan, but
that the lenders were entitled to recover the difference in amount
between the sum
lent and the sum on board at the time of the loss
{FranMim, Insy/r(mce Com^cmy v. Lord, 4 Mason's R., 248). This
would seem to be a slight modification of the old French doctrine,
as expressed in the ordinance and laid down by the elementary
writers.
It is not necessary that the borrower should expend the money

which he has borrowed in merchandise at the place where the con-
was made. He may carry it with him, in order to make a
tract
more advantageous use of it during the voyage. This was the

common practice among the Romans, and the right is recognized
by the French authors. It is sufficient that the money was exposed
to the perilsof the sea to make the maritime interest due, and on
the other hand the borrower will be released from his bond by
proving the property to have been on board at the time of the loss.
Nor is it necessary to >show the particular manner in which the
money was employed. It is enough to prove that at the time of
748 I/AW OF MARITIME- LOANS.
the loss he had property on board to the value of the siim bor-
rowied {Emerig. on Marit. Loans, 156, 157). The proof of the
application of the money lent at maritime risk is never thrown
upon the lender. It is sufficient for hiin to exhibit his contract to
the person who has received his money or his agent {Gasa/regis,
Disc. 1, n. 37; Pothier, n. 52).
The Supreme Court of the United States have held that it is not
necessary that a respondentia loan should be made before the
departure of the ship on her voyage, nor that the money loaned
should be employed in the outfit of the vessel, or invested in the
goods on which the risk is run. And it was declared that, if the
risk of the voyage be substantially and really taken, if the transac-
tion be not a device to cover usury, gaming or fraud, if the advance
be in good faith for a maritime premiunl, it is no objection to it that
it was made after the voyage was commenced, nor that the money
was appropriated to purposes wholly unconnected with the voyage.
It was further suggested that the lender is not presumed to lend
upon the faith of any particular appropriation of money and if ;
he were, his security could not be avoided by any misapplication

of the fund, when the risk was incurred in good faith upon other
goods.
Mr. Justice Story delivered th.e opinion of the court, and,
among other things, said : " The form of the respondentia bond in
the present case is, as far as we know, the common and usual form.
The only deviation from the actual facts is, that it seems in some
of its provisions to contemplate the voyage as not then commenced.
This probably arose from using the common printed form, which-
is adapted to that, as the ordinary case. But it misled no one, and
was certainly perfectly understood by the parties. The risk was
taken for the whole voyage, precisely as if the ship bad been then
in port and
; if, before the bonds were given, the property had
been actually by any of the perils enumerated in it, it is clear
lost
that the loss must have been borne by the lenders. They could
not have recovered it back, since the event was one within the
scope and contemplation of the contract. The safety, then, of the
property at that particular period does not vary the rights of
the parties, and from the very motive of the transaction it must
have been entirely unknown to both whether the ship was at the
time in safety or not. They entered into the contract upon the
usual footing of policies of insurance- lost or not lost. So far as
;
CONTRIBUTION BT THE LENDER. 749
this upon the point of good faith and

deviation from the fact bore
reahty of the contract as a genuine maritime loan, it was left to
the jury to draw such inferences as upon the whole circumstances

they were warranted to draw" {Conrad v. The AUantio Insvr
rance Company, 1 Peters' B., 386, 437).
CHAPTEE LIX.
EI8KS AND LOSSES BOENE BT THE LENDEE8 IN OASES OE MARITIME

LOAN —
LOSSES AND AVEEA&E OCCASIONED BY THE PEEILS OF THE
SEA —
LBNDEES BEAR ONLY THE EISE8 OF THE SEA LOAN FOE
THE VOYAGE OE A LIMITED TIME PLACES OF PEEIL AND CHANGE
OF THE SHIP.
Cleieac observes that the contract of maritime loan is subject

to the same risks as the policy of insurance {JVbtes on le Guidon
de la Mer, ch. 18, art.% p. 331). Valin and Pothier both
'
adopt the same rule, but admit certain exceptions to which it is

liable ( Yalvn,, art. 11, h. t., amd art. 6, tit. Des Assurances
Pothier, n., 16, h. t.). The Guidon de la Mer decides that mari-
time money does not contribute to any particular average {Ch. 19,
art. 5). And by the law of England and of this country there
would seem to be neither average nor salvage upon a bottomry
bond. The lender at maritime risk is not bound to contribute to
any simple average or particular damage which may happen to
the merchandise unless there is a stipulation to the contrary.
Thus, in order to charge the lender with particular average, there
must be an express agreement to that effect, while the insurer is
obliged to contribute, if he has not protected himself by a special

clause to the contrary ( Vide Emerig., Traite des Assurances, ch.
12, §§39, 40).

Pothier illustrates the reason of this difference. He says that
" the insurers bind themselves to indemnify the insured against
every loss and injury which their property may suffer from the
perils ofthe sea ; but in a maritime loan the lender enters into
no obligation to the borrower" {Pothisr, n., 42 and 47). Audit
may be added that the safe arrival of the vessel is the essential
and characteristic condition of the latter contract, and simple
average has no influence on the accomplishment of this condition.
750 LAW OF MABITme LOANS.
The lender, therefore, is a stranger to it, unless he has made him-

self liable by a special agreement.
The Guidon de la Mer says that " bottomry money must con-
tribute to ransoms, compositions and jettison made for the safetji
of the whole, and for the release or avoiding of damages" (CA.
19, art. 5). The reason of this difference between simple and
gross average is this : Simple average, which is occasioned by acci-
dent and without the fault of man, contributes nothing to the

fulfillment of the contract and the safe arrival of the vessel ; on
the contrary, without the aid of ransom or jettison the ship would
never return.
Says M. Prevot de la Jannes :
'' The lenders ought to contribute
to discharge the borrowers from gross averages, such as ransoms,
compositions, jettisons for the common safety of the vessel and
cargo ; for it is no more than a loss that they suffer for the preser-
vation of their money, which, without this, might have perished
with the vessel " {Prmeipes de la Jurisprvdence Francois, tit. 20,
n. 556).
Where by the underwriters, for the payment
repairs are ordered
of which a bottomry bond is given, and they refuse to pay it on
the arrival of the vessel, in consequence of which she is sold, they
are liable for all the damage which occurs to the owner in conse-
quence of that refusal. Where a ship has been repaired, the
underwriters are not entitled to the usual deduction of one-third,
new for old, unless the ship has been put into the free possession
of the owners again. Where a ship is obliged to put into port for
the benefit of the whole concern, the charges of loading and
unloading the cargo and taking care of it, and the wages and pro-
visions of theworkmen hired for the repairs, become general
average (Da Costa v. Newnham, 2 Term R., 407).
It would seem, from principle, that a lender upon bottomry
ought not to be allowed to stipulate that he shall be exempt from
gross average ; and this seems to be the opinion of both Valin
and Pothier {Pothier, n., 46). Such an agreement would proba-
bly be held to be absolutely void, and rejected, because it is con-
trary to natural equity, and even to the interest of the lender, to
whom everything would be lost if' the vessel perish {Pothier, n.
46).
It has been before asserted that the safe arrival of the vessel is
the essential condition and characteristic feature of the contract

CONTRIBUTION BY THE LENDER. 751
of maritime loan. Consequently this condition should be scrupu-

lously preserved. To make the contract lawful, the money must
be at the risk of the creditor. If the ship perish before she
arrives in port or previous to the expiration of the limited time,
the condition has not been performed, and consequently the expec-
tations of the lender vanish. This is the reason assigned why
the French ordinance decided that " every contract of maritime _
loan shall become void by the entire loss of the thing pledged in
the loan, provided that it happens within the time and place of
the risk."
It sufficient, then, that the entire loss shall happen
seems to be
within the time and place of the risk in order to render the con-
tract void. It would really seem to be intolerable if the borrower,
after having lost his property by an accident within the time and
place agreed upon, should be obliged- to pay the whole princi-

pal, with maritime interest, under pretense of an agreement which
was radically void and usurious. And from a very early day the
French Admiralty Courts have disregarded stipulations in contracts
of bottomry that the lender shall be exempt from what is called
gross average in case of damage to the merchandise or ship covered
by the contract.
The lender upon bottomry or respondentia bears no risks than
those of the sea. He is not responsible for accidents which may
happen from the internal defect of the thing — as if the commodi-
ties rot, if if, from length of time,
the liquors leak out of the casks,
become unseaworthy by age.
dry-goods get heated, or if the vessel
And it has been held by the English courts, that where a ship's
bottom is injured by worms in the course of the voyage, so tliat,
in consequence thereof, she is incapable of completing the voyage
"
and is condemned, the loss is not a loss " by perils of the seas
[Rohl V. Parr, 1 Es;^. N. P. €., 444).
The lender is not responsible for any accidents which happen

through the acts of the owners of the vessel, the master and mari-
ners, or shippers. It is not a peril of the sea at the risk of the
lender, if the voyage be changed by order of the owner, or a loss
hashappened by barratry or the fault of the merchant {Roocus, de
Nwo. n. 51). If the effects be forfeited in consequence of their
being contraband, in which the lender has not participated or of
which he was ignorant, he does not suffer from this accident,
because it is not a peril of the sea {StypmanmiJ'S, part 4, oh. 2, n.
752 LAW OF MABITIME LOANS.
105). But if tte design of smuggling or trading in contraband

was evident from the contract, the loss would fall upon the lender
{Kurioke, tit. 6, p. 362). And if any other shipper than the bor-
rower be the occasion of an accident by his own act, without the
borrower being able to prevent or repair it, this would be a via
Timjor and an accident at the risk of the lender, provided it occurred
at sea and was not the 'subject of- particular average.
If the goods remain unsold at the place where they are exported,
if they be sold under the limited price or to an insolvent person,
or if they are pillaged, burnt or the like, the lender is not aflfected
by such accidents, because they are perils of the land and not of
the sea {Stypmcmnus, pa/rt 4, ch. 2, n. 204, p. 685).
Among the Romans, money lent on maritime interest and risk
was given either for the whole voyage, that is, out and home, or
only out, or only on the return voyage, or for a limited time and ;
this is in accordance with the doctrine of the American courts. It

has often been held in this country that a bottomry bond is equally
valid, whether made for a definite period of time or for a specified
voyage ( Vide The Draco, 2 Sumner's R., 157 Eneas v. The ;
Charlotte Minerva, 39 SunSs Merchants Magazine, 73).

The old French ordinance upon this subject declared that if
" the time of the risk be not stipulated in the contract, it shall
commence, as to the vessel, when she hoists sail, and continue

until she drops anchor in her port of destination ; and as to the
cargo, as soon as it should be laden on board of the ship or of the
lighters to be carried thither, and continue until it be delivered on
shore" {Marshall on Insurance, 656). According to this, the
voyage which the vessel makes, from her departure until her arrival
at the port of destination, whether it be out or home, constitutes
what is called the entire voyage, to distinguish it from the voyage
for a limited time.
It is very common to borrow money at gross adventure, or at
maritime risk, for the voyage out and home, whether it be on the
vessel or the goods. In commences at the place
this case, the risk
of equipment or lading, and does not end until the vessel has
returned to the same place. Under the French ordinance, just
referred to, if the time of the risk was not regulated by the con-
tract, it appears that the presumption was that the money had
been lent only for the outward voyage. M. Pothier was of the
opinion that, in doubtful cases, the contrary presumption should
MONEY, WHEN DUE. 758
]De indulged, which seems to be, in effiect, analogous with the

nature of a contract of retwn voyage, and in accordance with the
daily practice. Perhaps, in a majority of the cases, the maritime
money is tobe repaid on the safe return of the vessel to the port
of outfit. But it is all a matter of intent of the parties, to be
gathered from the contract, which, in such cases, is ascertained
without difficulty or doubt. The rule of the celebrated ordinance
of Louis XIY, upon the subject, seems to have been copied into
the Napoleon commercial code, although it was thought that the
extensiop. of French commerce demanded a new marine ordinance,

which, by investigating the nature of things and their various
relations, might prevent litigatiop and give stability to the juris-
prudence of the empire. But, as before suggested, Bonaparte's
legislators adopted the old rule, which had been in force for over
a century, without apaendment or improvement {Code du Gom-
mei-ce, UTo^ Z2^).
Of which happen during the existence of the risk
course, losses
are But when the voyage has ended, or the
borne by the lender.
time limited has elapsed, the risk ceases, as to the lender, and the
maritime interest becomes due {Pothier, n. 36 Yalm, art. 11, ;
jp. 13). Contracts of this nature are sometimes for a specified

period, and pro rata, not exceeding, for exa-rnple, one year. In
such, a case the term is limited to one year, at the expiration of
yrhich the risk ceases, as to the lender, and his principal and inte-
rest then become due. And it may be added that the terms of
the clearance are of no consequence to the lender in estimating
his risk. In some countries, for exainple in France and Holland,
vessels are sometimes cleared out for one or two years, without
designation of places which they are to visit. These voyages, in
France are called en oara/van; and the vessels go from port to
port in quest of freight or of profits until the time limited for
their return. The practice has been expressly sanctioned by the
English courts (
Vide Gienar v. Meyer, 2 E. Bladh. R., 603).
In Italy they sometimes lend at gross adventure for an unliniiited
time, without designating the voyage. In such a case it depends
on either of the parties to terminate the contract when he thinks
fit,provided it be done at a proper time and under proper circum-
stances {Targa, ah. 33, n. 11, 12, 14, 15, p. 145). The same
custom prevails in some other countries, and there does not seem
to be any reasonable objection to the practice,
95
The course of the time limited is not interrupted hy a demur-

rage or delay in port during the route, because, whether the stay
be voluntary or forced, it is possible that the ship may perish by
the perils of the sea {Stypmcmrms, prni 4, ch. 2, n. SO, p. 383).
In order that a delay may suspend the time, there should be an
express agreement to that effect; but such stipulations are not
common, except in charter-parties of affreightments or articles of
associations for privateering. And it seems that a special agree-
ment is equally necessary to justify a deduction, for the time during
which a vessel is laid up for refitting or otherwise, from the term
limited by the contract, unless, from the circumstances of the case,
the laying up of the vessel be considered as a general average.
The law would be the same as to demurrage occasioned by a fear
of enemies or pirates (JEhnerig. on Mo/rit. Loans, 175).
Aship which is not heard from is presumed to have perished
within the time limited, at least, until the borrower proves the
contrary ( Valin, art. 13, A. t.). As soon as the peril commences
a lender has an undeniable right to the whole interest, although the
peril should be abridged or lessened.
The French ordinance of Louis XIY did not provide for the
case of money lent for a limited time with a designation of ike
voyage, but declared that then the voyage designated would be
the principal object of the contract and the time merely accessory.
And Targa adds that it would be just that the borrower should
arrive at the place of his destination in order that he may be in a
situation to pay the principal and interest {Ta/rga, ch. 33, n. 13,
J?. 146). Doubtless the time was added, not as a period for the
transaction of the risk against the lender before the voyage ended,
but as a measure for the increase of interest in proportion to the
length of time beyond the period stipulated. Contracts of mari-
time loan are sometimes on a voyage out and home, at a certain
per cent per month. In such a case the interest is not due until
the end of the voyage. But if the ship perish, the lender has no
claim.
Yalin says that "usurious lenders have invented a way of
indemnifying themselves in a case where the vessel does not
return within the ordinary time, by stipulating that if she does not
return by a certain period, they shall receive interest at the rate
of one-half per cent per month both on the capital and the mari-
t jpie interest " ( Valim^, aH. 2, h. t., p. 5). But- since they are
GROSS ADVENTURE. 755
allowed to stipulate for any rate of interest that they think proper,
it is not easy to see any good reason why they should be prevented
from augmenting an interest already due in a case where the ves-
sel does not return within the time limited.
In respect to the places of peril and change of the ship, it may
be affirmed that the lender is not responsible for any loss which
occurs out of the places designated in the contract, except in cases
of deviation occasioned by necessity or the perils of the sea
{Pothier, n. 18). A voluntary deviation discharges the lender
from the consequence of any ulterior peril, although the ship
return to her legitimate track {fimerig. Traite des Assurances, ch,
15, § 16). The lender is not answerable for a change of the ship
without necessity. Losses occurring in any other ship than that
which is designated in the contract do not affect his rights.. But
if the change of the ship be of necessity from the perils of the sea,
the lender must bear the risk of the substituted vessel. For
. instance, if the first vessel is taken for the service of the king or
the government, or is declared unseaworthy, or is wrecked, the
borrower, whose goods have been landed before the accident, may
ship them or their returns in another vessel at the risk of the
lender ; and it may be remarked that the additional freight which
may have been paid to the substituted vessel is a gross average,
which is chargeable to the lender. At least, such is the doctrine of
theFrench ordinance, and the English law seems to be similar
{Manhall on Insurance, 656).
CHAPTEE LX.
THE NATURE OF BOTTOMET BILLS —

WHERE AMD IN WHAT MANNER
MAErriME MONEYS ARE TO BE PAID LIMrTATIONS OF ACTIONS —
FOE THE RECOVERY OF THE SAME —
RULE IN EBSPECT TO SECU-
EITY IN SUCH CASES EXTINCTION OF THE CONTRACT OF BOT-
TOMRY —
CASES ILLUSTRATUfa THE SUBJECT.
t
The
term, hill of gross adventure, used by the French, is very
comprehensive in its nature, and has found its way into the legal
language of England and the United States. As the term is used
by the French, it is sufiiciently comprehensive' to include every
instrument of writing vhich poijtains g, coptract of bottpmry,
756 LAW Ot MARITIME LOANS.
respondentia, and every other species of maritime loan; and there

seems to he no other term of similar import in use in the English
language.
Bottomry hills are often referred to in the books and are weH
understood. "With respect to these bills, they are considered to be
negotiable where they are made payable to the owner or the
bearer, as is often the case ; therefore, they may be indorsed and
delivered from one to another. Against the bearer of such a bill
a set-off will not be entertained of a debt due from the original

creditor himself, because in such a case the indorsed biU must be
considered as had been drawn in favor of the bearer himself.
if it
But if the bill had not been drawn payable to order, then the
drawer would be entitled to the same exceptions or set-off against
the bearer that he would have had against the original payee, because
in that case 'the indorsement has no other effect than the assign-
ment of a mere chose in action. It would be the same if the bill
were not expressed to be for value received or in merchandise,
because in such a case the indorsement is a naked authority to
receive the amount.
The holder of a bottomry biU, who has paid its value, beeotaes
the owner of it. He incurs the maritime risks, and the maritime
profits belong to him. On the return of the ship, if the borrower
be insolvent, the bearer of the biU is entitled to an action of guar-
anty against the indorsor, in the same manner as the bills of
exchange or negotiable notes. This has been the doctrine since

the days of Casaregis, and has not been questioned since {Casareg,
disc. 55). But this guaranty, according to the same author,
extends no further than the principal sum, although it also covers
the cost of protest and common legal interest from the time of the
protest ; but not the maritime interest, for the indorsement is not
a guaranty of the contract. In short, the guaranty here spoken
of would not take place if the indorsee should take the bill at. his
own and without recourse. This depends on the agreettient

risk
of the parties ( Vide Mnerig. on Marit. Loans, 183, 185).
When the risk is ended, the borrower must pay the principal
and maritime interest in money. An offer of merchandise in pay-
ment would not answer the contract {PoiMer, n., 242, 530). And
payment should be made in money which is current at the place
where it is made payable. The borrower having received money
on the goods or the vessel, it has been thought to be just that a
MONEY, BOW PAU). 757
little time should be allowed after the arrival of the vessel for the
QoUection of the freight or to sell the merchandise, so that he may
be able to fulfill îs obligations. In some countries it is customary
to allow a specified number of days ; and the legal interest does
not commence until that time has elapsed. Emerigon thinks that
if the contract do not provide for any days of grace,, a reasonable
time should be allowed to the borrower to enable him to raise
ftinds. Indeed, he expresses the opinion that time should be
allowed, even if it be stipulated in the contract that the payment
iâll be made immediately on the arrival of the vessel {Emerig. on
Marit. Loans, 185). It would be well for the parties to make
such stipulations in their contracts in this regard as to them may
be thought convenient^ although it is doubtless in the power of
the judge, in all these cases, according to equity and the circum-
stances of the ease, to grant a certain delay, which, without injuring
the creditor, will enable the debtor to pay the debt, saving the com-
mon legal interest, which runs from the time when the debt became
due, and not merely from the time the action was commenced. If
the money was lent for the outward voyage or for a limited time,
the principal and maritime interest ought to be paid at the place
where the stipulated risk ended, although the voyage be not com-
pleted, and the same should be paid to the creditor or his
appointed jagent {Styp., part 4, ch. 2, n. 90, p. 384). But if, at
the place where the stipulated risk ends, there be no person to
whom the principal and interest can be paid, the borrower may
make a judicial deposit of it or carry it with him. In the latter
case, legal interest will not be chargeable until his arrival, but the
money or efiects which he embarks will be at his own risk

{LoGGeniu8,Ub. 2, ch, 6, n. 10, 11). And if, in order to fulfill his
engagement, he voluntarily draws bills of exchange, they are on
his own account, unless they are drawn by the order of the credi-
tor ; and an agreement that the bills of exchange should be at the
risk of the borrower would be inconsistent with the nature of the
contract, and usurious for it is sufficient if the borrower pay the
;
principal and interest at the place where the term expires, without
permitting him to place himself in a worse situation.
By the French Ordma/nce de la Marine, the borrower might
apply to the judge of the place where the term expired for per-
mission to make a deposit, and the other party was also at liberty
to commence an action before the same judge for what was his
;
758 LA W OF UARITIME LOANS.
due. In France, in most commercial cases, the court before which

the suit is first brought may order, by its judgment, that the
money shall be paid provisionally, any appeal notwithstanding
the party to whom the money is paid giving security to refund, in
case on an appeal the judgment shall be reversed ; although it
would seem that such provisional orders cannot be made in cases

of maritime loans, as they are not among the enumerated cases
for which this remedy is provided ( Vide Emerig. Marit. Loans,
187, noU).
By the old statute of Marseilles, adventures shipped on a joint
concern and maritime loans, the acting partner could not be called
upon to account after the expiration of four years from the return
of the ship, but it was decided that this limitation did not apply
to maritime loans under the Ordinance de la Marvne, because the
latter ordinance established no such limitation. In this country,
it has been held tliat there is no limitation of action against the
original owner of property found derelict at sea, unless there be
proof of an intention to abandon wholly {Wilkie v. Brig St.
Peire, Be^s Adm. JR., 82). But by a late case, decided by the
United States Circuit Court for the first circuit of Massachusetts,
it is held that, if proceedings for enforcing a bpttomry bond are
instituted witMn a reasonable time, the lien will not be affected

merely by the departure of the vessel from the return port, îth
or without the knowledge of the holder {Burhe v. The M. P.
Rich, 1 CUff. C. G. R., 308). In respect to security given with
a bottomry bond, the ordinary rule would require a degree of
diligence in prosecuting the claim ; especially so in so far as the
same may affect third persons.
It may be afiBrmed, however, that in general the security is

bound by the same obligations to the lender as the borrower
himself, unless there is a pai'ticular clause to the contrary in the
contract {Pothier, des Ohlig.; n. 404, p. 198). This is the
doctrine of Casaregis, as well as of Pothier {Casag., Pis. 63). The
security is bound to pay the pi-incipal and interest, not only in
case of the safe arrival of the ship, but, would seem from the it
decisions, if the ship do not return ; would

that is to say, such
appear to be the rule, provided the goods on which the money was
lent are sawed, or were secured on shore before the loss of the ship.
And the security is bound, ipso jure, to pay legal interest from
the time, of delay of payment. But " those who have been
;
NULLITY OP THE CONTRACT. 759
security "for money lent at profit are discharged on the completion

of the voyage, if the creditor leave the principal in the hands of
the debtor for another voyage without their consent " {Guidon de
la Mer., ch. 19, art. 2, p. 335). . And one author says :
" The
security is discharged, although the new contract be imperfect
and insufiScient to cancel the first obligation of the debtor ; as in
the ease of a renewal or tacit continuance of a lease after the
expiration of the stipulated term, and other similar cases, where
it is evident that the security is bound " {Boutwrie Inst., pp.
460, 482, 507).
In respect to the question as to whether the security is respon-
sible in case of the loss of the ship, where it appears that the bor-
rower has fraudulently borrowed more at maritime risk than the
value of his interest, there appear to be decisions both ways. In
such cases the borrower is personally responsible to the lender, and
the Guidon de la Mer allowed an action against the borrower and
his pledges jointly in all cases where an action would lie against
the borrower {Guidon de la Mer, ch. 19, art. 8). And the same
doctrine was maintained by Casaregis {Casa/reg., dis., 62, n. 37).
On this principle the security would be responsible in the cases
supposed, and the latter opinion is certainly in favor of this doe-
trine. If the ship perish, he who has borrowed beyond his inte-
presumed to have had nothing at risk. This was the pre-
rest is
sumption established by the ordinance before referred .to, and it

was regarded as juris el de jure. The contract is thus declared
null, and hence-would be just that the security should be
it
answerable, and that he should pay the same with legal interest
and the more so, because in general the security is the partner of
the borrower. The important part of commerce which is carried
on by means of the contract of maritime loan would languish
extremely in consequence of the little confidence that is placed in
seafaring persons, if the were to be weakened
hand of the security
by exceptions which are contrary to the spirit and nature of the
contract. Thereupon, the decisions holding the security holden in
such cases is never generally approved.
In respect to the extinction and nullity of the contract of mari-
time loan, it may be remarked two kinds of nul-
that in such loans
lity are rfecognized ; the first, where the contract contains some
internal defect, which makes it illegal in its very commencement
and the other, where it becomes void by the loss of the things upon
which the loan was made. The latter does not affect the existence
of the contract, considered in itself. It releases the borrower from

his personal obligation by reducing the contract to the value of the
portion which may have been saved. This is a condition which
operates as a release of the borrower, who is only obliged to pay
in case of the safety of his property. By the French ordinance it
was declared that " all contracts of maritime loan shall become
void upon the loss of the thing upon which the loan was made,
provided it happened by accident, within the time and place of the
risk ;" and it was added, in another article, that " in case of wreck
the contract shall always be reduced to the value of the goods
saved." no doubt that the contract becomes void by the
There' is
loss of the shipon the voyage. " Sueh is the nature of the con-
tract of maritime loan, that if the thing upon vrhich the loan is
made perish by accident, the contract is of no effect, and the lender
can claim nothing. This is what is meant in the eleventh article,
where it declared that the contract shall be void in this case. It
is
is also the nations of Europe " ( Valin, 12 ; and

common law of the
vide Olairac, sur le Ouidon, eh. 18, art. 2, p. 331). " The con-
dition of the contract of maritime loan, and the obligation of the
borrower which it contains, exist when the thing on which the loan
is made remains on board during the whole term without being
captured or whatever damage they may suffer from mere
lost,
accidents of vis major. And the borrower is obliged, in this case,

to pay the whole sum lent, with maritime interest, without claim-
ing any deduction on account of the deterioration which his goods
may have suffered " {Pothier, n. 42). But in case of wreck or any
other accident of vis major, the contract is void, and is reduced to
the value of the things saved. If a capture, shipwreck, founder-
ing, stranding, and the like, take place, it is a legal total loss.
There remains nothing but the salvage. The personal obligation

of the borrower is extinct. The lender has nothing but an action
in rem on the salvage, and the contract is reduced to the value of
the effects saved.
M. Pothier observes :
" We have seen that the arrival of the
thing upon which the loan was made, whatever damages it may
have suffered, by what accident soever of vis major, preserves the
obligation of the borrower, who must pay the sum lent and the
maritime interest. What if only a part of the thing return and the
remainder has been lost or captured ; as, for example, if the ves-
EFFECT OF LOSS OF TBE SHIP. 761
sel has been pillaged by pirates, wlio take away only a part of the
cargo In such cases the condition applies only to what is saved,
?
and the contract is void as to the remainder." But if the goods of

the borrower had been entirely landed before the accident, the con-
tract would not be affected, provided the goods or their proceeds
could be laden on board of another vessel. The change of the ship
would then be at the risk of the lender. This has been explained
in a previous chapter. If the borrower cannot find another vessel
in which to ship the goods or their returns, he becomes released
from responsibility by rendering an account of the articles saved
in the place where the goods are landed. This ha& also been
explained in a previous chapter.
If the effects which were on board at the time of the accident
were worth less than the sum borrowed, the contract would still
exist as to the surplus. This should be understood, however, sub-

ject to the statement that there was originally on board goods to
the value of the sum borrowed, and that a portion of them was
landed at some time previous to the accident. The authorities
will not support the position without this limitation. If the bor-
rower had not shipped to the amount of the loan, the lender could
demand only legal interest for that part which was not employed
m the voyage and exposed to its perils.
If the effects of the borrower are landed in consequence of the
unnavigability of the ship, and he cannot provide another ship
forthem, they are to be considered as goods samed, to the value of
which the contract must be reduced. If they are shipped in
another vessel, the risk of the lender is transferred with them.
But in such a case, if, after the accident, the goods decay or
deteriorate in consequence of the delay, either on shore, in the new
vessel or otherwise, so as to be less in value than the amount of
the loan and interest, it is thought that the lender would be
obliged to bear the loss, because the contract is broken by vis
major.
' It follows, from what has been said, that the personal action
against the borrower is barred by accidents arising from a vis
trmjor.Nothing remains for the lender but an action in rem
and an action Meôfo'or?/.?w gestorum against
against the things saved,
him who has managed or taken care of it, and in whose possession
it may be. The lender may pay himself from the effects saved,
both his principal aind interest, if they are sufficient to enable him
;
762 ÂW OF MARITIME LOANS.
to do so. But if they are not, he has no recourse against the

person ; for all that may be due him, the lender can demand only
the value of the effects saved and nothing more. And he can
demand this value only from the person in whose hands the goods
may be, who has preserved them for account of the parties con-
cerned. From the moment of the accident the lender is seized, of
right, of the effects saved; that is to say, he has a special lien
upon them payment of the debt, saving the freight and sal-
for
vage. If the money was lent upon the hull, the lien of the lender
embraces not merely the wreck of the ship, but also the freight on
the merchandise saved {PotMer, n., 52). But the subject of lien
will be discussed briefly hereafter.
.In order to relieve himself from his engagement, it is not neces-
sary that the borrower should abandon. The loss by vis major,
ipso jure releases him from the personal action that flows from
the contract {Valin, art. 13, h. t.). All that takes place after the
accident principally concerns the lender, whose right of action
against the borrower ceases, unless he- himself has recovered the
goods or has been in fault. The borrower can claim nothing from
the effects saved until- the is wholly satisfied.
lender The debtor
cannot divide with the creditor to his prejudice; but in some cases
the creditor may demand an apportionment with the debtor.
M. Pothier observes that if the loan " be made only .on a part of
the cargo, as on two-thirds or three-fourths, the lien extends only
to that proportion of the effects which are preserved from wreck
the contract is reduced, not to the whole, but to that proportion,
and the remaining third or fourth belongs to the borrower, free
from any claim or if the surplus is insured, it should be abandoned
;
to the underwriters " {Pothier, n. 49, h. t). This distinction is
also referred to by M. Valin, and flows from true principles ( Vali/n,
art. 11).
In respect to the effect which the ill success of the voyage, by
reason of something beyond the contract of the borrower, may
have upon the contract of maritime loan, this does not seem to
have been provided for by the French ordinance. But the omis-
sion is easily supplied by the application of general principles^
The object of the contract is that the vessel shall reach some spe-
cified place, where the borrower may sell his merchandise, pur-
chase returns, and make such a voyage as will enable him to
comply with his engagements. It is only on his successful rebu/rn
MFFWCT OF LOaa OF THE SSIP. 763
that he has promised to pay the principal and interest. The

accident renders this successful return impossible; therefore the
object has not been accomplished ; the condition is not fulfilled ;
the contract exists in its original state, and ought, necessarily, to

be rescinded. If, by accident, the voyage be broken up before it
iscommenced, the better opinion is that the sum borrowed ought

to be returned, without entering into any modifications, which are
of no use, but occasion lawsuits. The maritime interest is not

due, and common legal interest is due only from the time of
demand and refusal ( Vide Pothier, n. 39).
If money be lent upon the cargo, to go and return, and, in con-
sequence of being rendered unfit to navigate, or other vis major,
the ship do not return, and no other can be provided for the
goods which have been landed, or their returns, the contract is
void. The borrower then becomes the mandatory of the lender,

and has full power to dispose of the eff'ects saved for fhe account
of the lender, in order that he may be reimbursed. The question
has been so decided by the French courts, and the same doctrine
has been recognized by the American courts.
An eariy case, decided in the State of Massachusetts, may be
referred to. Money was on a bottomry' bond, conditioned
lent
that if the vessel should perform the voyage the money should be
paid in twenty days after her arrival if she should be lost through
;
the perils of the sea, or by fire, or by the enemies of the United

States, the bond to be void. The vessel was captured by a British
cruiser, and condemned as lawful prize. Upon appeal, the con-
demnation was reversed, and full compensation received by the
owner for vessel, cargo and freight, by virtue of an award of the
commissioners under the treaty of November, 1794. Under these
circumstances, the Supreme Judicial Court held that the obligee
could not recover in an action of debt brought in the case.
The case was very elaborately argued by the ablest counsel in
the State, and an exhaustive opinion given by Parker, J., in the
course of which he said :
" Whether the terms, perils of the seas,
comprehend every species of marine accident, where accidents of
several sorts are mentioned in addition to perils of the seas, I shall
not undertake to decide ; but I am satisfied that the taking, as
alleged in the plea in bar, is, to all legal intents, a capture by the
enemies of the United States ; and, if it had been so alleged by
the defendant, the facts would have supported the plea. It is so
764 LAW OF MASITIMB' LOANS.
understood in questions of insurance; and the doctrine is fully

supported by the English writers on insurance, and by continental
jurists of high authority.
" I am, therefore, of opinion that the plea in bar is a sufficient
answer to the plaintiff's action, unless it is avoided by the facts
set forth in the replication ; and whether it is so avoided or not,
is the second question which it is necessary to consider.
" By the replication, it appears that the sentence of condemna-.
tion was reversed, and that the value of the vessel, cargo and
freight, in money, with interest, was awarded to the defendant,
and has been received by him before the commencement of this
action. It is contended by the plaintiff that, xmder these circum-
stances, there was no loss of the vessel and that, therefore, as the
;
money secured by the bond has not been paid, the bond is for-
feited. * * *
" The vfessel, in this case, was captured as prize, was condemned,
and never returned to the owners, but, probably, was destroyed in
consequence of her detention by the captors. Here was a total
loss, which discharged the defendant from his bond. But it is
said that the defendant has received her value ; so that, virtually,
there was no loss. In equity, the plaintiff's case is undoubtedly
very strong, and I can see no principle of mercantile honor upon
which the recovery can be withheld by the defendent; but we
must decide upon established legal principles, and are not at
liberty to wander into the field of equity to do justice to the
parties. The question with us is whether any event, within the
condition of the bond, has happened, whereby the obligor is
discharged from his contract. The facts relied upon by the
plaintiff show that such event did happen, viz., the capture and
condemnation of the vessel; and, further, they show that she
never did return. And although the defendant has recovered her
full value, yet I cannot say that there was a performance of the
voyage within the meaning of the condition of the bond" {Apple-
ton V. Crowninshield, 3 Mass. R., 443, 461, 462).
Upon examining the treatises of Emerigon, Pothier and Valin,
it appears that it is considered in France, as a principle of marine
law, that the lender has a claimupon the vessel or effects saved,
upon whichsoever the was taken. By these writers it will
risk
appear that" although a contract of bottomry is extinguished, by
any of the niarine perils upon which the loan has been placed, yet
;
EFFECT OF LOSS OF THE SHIP. 765
that the lender can pursue the effects saved, wherever they may-
be, and may maintain an action against the borrower, provided
they come into his hands. This has heen clearly shown in the
preceding pages. But no authority can be found to justify the
position that a bottomry contract, as such, can be enforced, where
the vessel, which was the subject of it, did not reach her destined
port of delivery. The lender is not entitled to the benefit of his
contract of bottomry unless the voyage be performed as stipulated
in the bond. There is no hardship in this rule of the law ; or if
there is, it is mutual and equal on each side. The debt is to
accrue on a contingency, by the express agreement of the parties
if it does not happen, there is an end of the claim, and the con-
tract is exlinguished.
It should be stated, however, that under the circumstances of

the case of Appleton v. CrowninsMeld (3 Mass. i?., 443), while
the contract of bottomry will be void, the lender may have his
action of assumpsit against the borrower for the sum lent and the
interest. This was so decided in an action between the parties to
the precise transaction, and the decision was put upon the ground
that the full amount of the sum bor-
borrower had received the
rowed, under the award of the commissioners, by way of com-
pensation for his vessel and freight.
Parker,J"., in his opinion, said
.
" Until I heard the very
:
elaborate and learned argument by the defendant's counsel against

'
the action, I did not entertain a doubt upon this question. It
appeared so clear that a part of the money received by the defend-
ant was a compensation for the $500, for which his vessel was
pledged to the plaintiff, that I had no suspicion he would await a
suit at law before he paid the money. * * *
" Upon the whole, I cannot see any fair principle upon which a
man, who
has borrowed money upon the pledge of his vessel, the
payment depending upon a contingency, the happening of which
is prevented by a third party, who, having destroyed the pledge,
afterward makes complete satisfaction for it in money, besides
paying him damages for detention, can refuse to repay the money
he so borrowed."
Sewell and Sedgwick, JJ., also delivered opinions, arriving at
the same conclusion of Parker, J.^ as above given {Appleton v.
CrowninsMeld, 8 Mass. JR., 340, 357, 358-369).

And it may be added that the English Court of King's Bench
,
766 TjJiW OF MARITIME LOANS.
have decided that nothing short of a total destruction of the ship

will constitute such a loss as to discharge the borrower of money
upon bottomry {Thomson v. The Royal Insurance Company, 1
MoAile cfe SeVwyn^s H., 30).
A bottomry bond was given on ship, freight and cargo; the

money to be paid within twenty-one days of the ship's arrival in
the port of London, and not to be demanded or recovered in case
the ship and her cargo be lost, miscarry, or be cast away on the
voyage. The ship never reached the port of London, but was
abandoned, as for a total loss, at Algoa Bay, where part of the
cargo was sold, and the proceeds brought to England, and part
put into another ship, and also brought to England. The fact
was not proved. The English
that the ship could not be repaired
Admiralty Court held that the bond must be pronounced for,
and enforced against the proceeds of the cargo and the cargo
shipped {The Mephania, 9 Mig. Lcm amd Eq. R., 553).
CHAPTER LXI.
LIEN OF THE LENDER UPON THE EFFECTS AT EI8K —

PEIOEITY OF LIENS
ON THE SHIP PBIOEITT OP LIENS UPON THE CAEGO PEINCIPLES
APPLICABLE TO MAEniME LIENS.
In respect to the lien which the lender has upon the effects sub-
ject to risk, there is a difference in the rule, as it has been applied
in different countries. Among the Romans, he who lent money

to purchase, build, repair or rig a ship, had a lien on the ship, as
a security for his debt. But this was exclusively personal. It was
only good by way of preference against simple contract creditors,
and had no effect against those who were secured by express
hypothecations. Kuricke, in his celebrated questions, conteiidi-
that the Roman laws gave an absolute hypothecation to him who

lent money to purchase, build, repair or rig a vessel {KuriclM, qu.
13, p. 866).But the design of this author was simply to afiapt

the texts which he cites to modern customs. According to the
Roman law, if one, among those who held hypothecations on the
ship, furnished money for her repairs, or to purchase provisions
during her voyage, he was preferred to the others, because he pre-
served the common pledge. The same law prevailed in favor of
LTENS ON TME SHIP. .767
one who had a hypothecation on the cargo or furnished money to
pay average or freight. He

was preferred to the others wIjo had
Bimilar liens, because the common pledge would have been lost
without his assistance. If the aid was furnished by a third per-
son, who had no previous lien on the ship, he would have only a
personal privilege and be excluded by the actual holders of hypo-
thecations {Vide DorineUus, de pignor, p. 580).
The personal privilege, mentioned in the Roman law, seems to
be unknown in the French jurisprudence. Every privilege includes
a iâcit and exclusive lien, at least against the thing which is the
subject of it. In the language of Livoniere, " a common hypothe-
cation is governed by the date of the contract, and a privilege is
regulated by the degree of favor due to each particular claim, and
is preferred to common hypothecation, though prior in time"
{Liv. Regie du Droit, ch.4, § 1, p. 439). For example, A.
builds a ship and gives an actual mortgage to B. thereon to secure
a debt due to him. Afterward the ship sails on a voyage, is dam-
aged by storms, and puts into port to repair. 0. furnishes money
for the repairs, which gives him a lien, by the French law, on the
vessel, even without an express hypothecation. On the vessel
arriving home, his lien will be preferred by privilege to the prior
actual mortgage, by reason of ihe favor due to his claim. On
the same principle, and for the same reason, mariners for their
wages will be preferred to the same mortgage, though they have
only a tacit and posterior lien.
The ship, her tackle, apparel, furniture, provisions, and even her
freight, are liable for the principal and interest of money lent on
the body and keel for the necessities of the voyage. In order that
the lender may be entitled to this lien, it is sufficient if the money
have been furnished honafide on the hull for the necessities of the
voyage, although the voyage should be broken up and the vessel
seized before she put to
In sea. would be no mari-
this case there
time interest, because there was no risk. But the lien would con-
tinue on the vessel, within the meaning of the French ordinance,
and as the rule is generally understood and enforced.
If money be lent to the captain during the voyage for the
necessities of the ship, the lien extends to the whole ship and
freight. But if the money be lent to the captain in the place
where the owners reside, without their consent, the lien extends no
turtherthan to the interest which the captain may have in the ves-
sel and freigkt. If it be furnished to a captain who was author-

ized to provide tackle, apparel and furniture, the lender has a lien
on the whole yessel. Money furnished to one joint-owner gives a
lien only on his own interest in the vessel and freight. The lender
on the ship and cargo has a lien in soUdum upon both. The
ship and cargo form but one funil as to him. The borrower, ^
by a conjunction re et verbis, has made his interest in the

two his capital. This capital is subject, without division, to
the lien of the lender, who may pay himself from either or
both. The lien of the lender comprehends his principal, iute-'
rest and other cha^-ges. In fact, the obligation to pay the
principal and interest arising from the same source, the same
lien extends, to both. In order to have the advantage of his lien
against a third person, it is not necessary that the lender should
prove the useful employment of the money; it is sufficient if his
title be clear. These are rules laid down by the French writers,
and are thought to be of general application ( Vide Pothier, n. 48,
52, 57 ; Valin, art. 7, h. t., cmd a/rt. 16, tit. De la Sadsie, torn. 1, p.
344).
In respect to priority of liens on a ship which has not com-
menced her voyage, the Consolato del Mare contained this provi-
sion :
" If a vessel just built be «old at the instance of creditors
before she is launched or before she has made her first voyage, the
carpenters, caulkers and other workmen, as well as those who
furnished the timber, pitch, nails and other articles which are neces-
sary in the construction of a ship, are preferred to all other credi-
tors, of what sort soever they be, even those who have lent money
under a written declaration that be employed in the build-
it is to
ing of the ship " {^Ch. 32). And the French OrdonnaTice de la
Ma/rine declared " If the vessel sold have not made a voyage,
:
the vendee, carpenter, ship-builders, caulkers and other workmen

employed in her, together with the creditors for the timber, cord-
age and other articles furnished to her, shall be preferred to other
creditors and by a concurrence among themselves" {Art. 17).
M. Yalin, remarking upon this subject, says " It is an important :
observation, on the subject of liens of carpenters and other work-

men employed in the building of a shipi, that they should worh hy
the order of the owner, in order to be entitled to this privilege.
If they were employed by an undertaker who has received the
-stipulated price of the work from the owner, they have no lien
LIENS ON THE SHIP. 769
upon the ship, and have no remedy but a personal action Against
the undertaker, upon whose good faith they acted. This, however,
is to be understood in cases where the worls'men and material-men
knew that it was a job, and that they had no business with any
one but the imdertaker " (
Valin, art. 17, Ut. De la Saisw, 349).
The doctrine of this author, therefore, is quite similar to the law
of the Consolato.
is nothing which is regarded with so much favor as debts
There
for work and labor furnished to a vessel. Commerce and the
country at large are interested in them. It is right that the work-
men and material-men should enjoy the lien thus given them.
They cannot be deprived of it, unless it is proved that they con-
tracted on the faith of the person and not of the thing.
the Consolato del Mare it appears that " the wages of mari-
By
ners,employed in the last voyage, shall be paid in preference to all
other creditors " {Art. 16, tit. De la Saisie, Consolato del Mar^,
ch. 33, 105, 135, 136). In respect to lenders at bottomry, writers
upon maritime law generally agree that the common order of
liens is reversed, and the last should be preferred to the first.
Kuricke, however, in his celebrated questions, opposes this view.

He contends that all the lenders should come in by concurrence,
•because, by means of their money they enabled the voyage to be

performed {Kmriche, Ques. 25, p. 880). Emerigon explains the
way " Before big departure from Marseilles a certain
rule in this :
captain borrows money at bottomry. He arrives at Martinique,

where he borrows a further sum for the necessities. He reaches
Cape Francois, where he again borrows for the same purpose. The
third lenders shall be preferred to the second, and those to the first.
Sic erunt novissimi, prvmi ; etprwm, novissmd. But the credi-

tors in each of these classes shall take by concurrence among them-
"
selves, without regard to the dates of their respective contracts
{Emerig. on Marit. Loans, 234). And it would seem that the
same order of liens is recognized by the American courts.
In an early case, decided by the Supreme Court of the United
States, Mr. Justice Chase, who delivered the opinion, said " : A
bottomry bond, made by the master, vests no absolute inde-
feasible interest in the ship on which it is founded, but gives
a claim upon her which may be refused with all the expedi-
tion and efficiency of the admiralty process. This rule is
expressly laid down in the boofes, and wiU be found consistent

97
;
770 LAW OF MABITIME LOANS.
with the principle of the upon which the contract of

civil law,
bottomry is held to give a claim upon the ship.

In the case of a
bottomry bond, executed by an owner in his own place of resi-
dence, the same reason does not exist for giving an implied
admiralty claim upon the bottom for it is in his power to execute
;
an express transfer or mortgage. There is strong reason to con-

tend that this claim or privilege shall be preferred to every other
for the voyage on which the bottomry is founded, except seamen's
wages. But it certainly can extend no further." It was held,
however, that if the obligee of a bottomry bond suffer the ship to
make several voyages without asserting his lien,
and executions
are levied upon the ship by other creditors, the obligee loses his
lien on the ship {Blaine v. The Ship Charles Garter, 4 OrancKs
a., 328). And to the same effect is an early case, decided by the
Circuit Court of the United States for the first circuit, in which
it was held that a tradesman has a on a foreign ship, lying in
lien
a port of the United States, for repairs made by him on board
and such lien will be preferred, in point of right, to a bottomry
interest which is prior in point of time, if it appear that the
repairs were indispensable.
Story, J., in his opinion, said :
" The lien for repairs must take
precedence of the bottomry bond. The repairs were necessary to
preserve the ship, even if she were to remain in the harbor till
she could be sold. It must be presumed that the ship was actu-
ally sold, inconsequence of the repairs, for as much more as
would pay for them. It has been holden that the lender on bot-
tomry is liable to general average, and entitled to salvage {Ma/rs.
on ins., 760, 764).
" This may be considered a continuation of the original voyage "
{The Jerusalem, 2 Gallisov^s C. G. E., 345, 346).
But the same court held that where a wharfinger has made an
express personal contract with the shipowner, the court will not .,
give his claim a priority over a bottomry interest which had been
previously attached to the ship {Expa/rte Lewis, 2 GaUison's M.,
483).
It has been held that if a bottomry creditor satisfies the claims
of seamen for their wages, in good faith, for the protection of his
demand, the court may recognize in his behalf a novation to
those claims, as being equitably compounded with his lien. But
he cannot coerce an assignment of their demands to himself {Tht
.
JiIENS ON THE SBIP. 771
Cabot, 1 Abhott^s Admiralty R., 150). And in a case, decided by

the Supreme Court of the United States in 1834, Mr. Justice
Story observed " It has been said that the seamen have a prior
:
lien on the ship for their wages, and that the amount of the wages
ought first to be deducted. Undoubtedly the seamen have such

prior lien but the owners are also liable for such wages and if
; ;
the bottomry holder is compelled to discharge that lien, he has a

resulting right to compensation over against the owners, in the
game manner as he would have if they had previously mortgaged
the ship" {Tfhe 8hvp Virgm v. Vyfhius, 8 Peters' R., 538, 553).
The general rule, in respect to bottomry bonds, is that they
supersede all prior liens upon the
and are preferred to every
ship,
other claim for the voyage, except that for seamen's wages. This
is a peculiarity relating to those contracts which is always recog-
nized by the courts {Vide The Madonna, 1 Dodson's M., 40;
Blaine v. TJie Ship Cha/rles Carter, 4 QrancKs R., 328). But,
as it has been before shown, this lien upon the vessel, created by
the bottomry bond, may be lost by the neglect to enforce it within a
reasonable time. Said Lord Stowell, in pronouncing the opinion
of the court, in an impoitant case before the English admiralty
"There is a principle of limitation in every system of jurispru-
dence, to be derived out of the nature of things, which entitles
the court to avail itself of the universal maxim, mgilantihus non
dormientihus jura suhvenvwnt. And in questions of bottomry,
more especially, the court is bound to expect particular vigilance,
because, although bonds of this kind are to be supported vnth a
high hand, when clear and simple, they are, in many respects,
things to be narrowly watched. Bottomry is a transaction whicb
atibrds great opportunities of collusion ; and, therefore, on the
very account of the importance given to these bonds, they are to
be pursued with very active diligence, in order that the court may
have the opportunity of considering them in their recent origin,
with a view to all the circumstances on which their honest validity
depends" {The Rebecca, 5 Rob. Adm. R., 94; and vide The Ship
Madora, 2 Woodb. and Minofs R., 92).
Le Guidon de la Mer speaks of renewal ; that is, tbe renewing,
from one voyage to another, of securities for money lent by mari-
time. The language is " These renewals have no special-lien on
:
the profits of the voyage, but are to be considered as among the

youngest privileged predito^s, If the roerchant reserve the profits
772 LAW OF UABITIME LOANS.
of each voyage, and leave the principal in the hands of the master
to be again employed, his right shall not be good against the
tradesmen and victualers, nor those who have lent their money by
bottomry for the particular voyage" {Quid, de laMer,ck. 19,
a/rt. 2). And in the 10th article (A. ^.) of the French ordinance, it is
also said that " money left by renewal or continuation of the con-
tract shall not- come into concurrence with that which is actually
furnished for the same voyage." The creditor in this case, doubt-
less, would have a lien ; but it should be declared to be posterior
to all others, and not prejudicial to the owners of the ship, unless
they had authorized the renewal contracted by the captain.
By the French law the seller of merchandise, and indeed of
anything else may pursue the property in the hands of the pur^
chaser for the payment of the consideration money, as long as it
can be identified. As to houses, lands and ships, he may pursue

the objects sold, even in the hands of a third person. This is
carrying the doctrine further than it is carried in this country or

in England. Here the vendor of real estate has an equitable lien
upon the property sold for the unpaid purchase-money, as against
the vendee himself, but not as against a hona fide purchaser from
the vendee. And the French doctrine appears rigorous to an
American lawyer, who will immediately suppose the case of a
honafide purchaser without notice. But the hardship will disap-
pear when it is considered that, in France, a deed or biU of sale is
not accompanied, as it is here, with a receipt in fall of the consid-
eration money, but the credit given, and the terms of payment
are always expressed on the face of the instrument of sale. There-
fore the ease of a iona fide purchaser without notice can never
occur. If the vendor should indorse a receipt in full on his bill
of sale, he would undoubtedly lose his lien, and be driven to the
new security which he had thought proper to take from the
purchaser.
The vendee of a ship which is not yet paid for may, then, under
the French law, reclaim it by action, to pay himself, provided he
yields the preference to those creditors who are privileged as
before stated and the same rule would apply here, at least, as
;
agTOst the vendee himseH, and purchasers from him, with' notice
that the purchase-money remains unpaid. It is considered to be
repugnant to the most common rules,' if the vendor of a ship on
credit should be obliged to yield to simple creditors of the vendee,
LIENS ON TSE CARGO. .
773
or if he were compelled to come into concurrence witli simple

contract creditors, whose claims have no connection with com-
merce. The
privilege of the vendor is tisually recognized by other
whose debts have no direct relation to the ship. But,
creditors,
however, those who have lent money for the necessities of the
ship during the voyage, those who have made advances for the
repairs, victualsand equipment before the departure, and shippers,
are preferred to the vendor. The ship, by putting to sea under
the name and at the risk of the new owner, ceases to be liable to
the creditors of the vendor and, with more reason, the vendor
;
ceases to have any lien, excepting that which results from general
rules of law.
In respect to priority of liens on the cargo, it may be remarked
that the charges for unloading, porterage and storage, are usually
and the captain's lien on the produce of
placed in the first rank,
the cargo for the freight and general average is placed in the
second rank (Kwicke Quest., 11). If in the course of the voyage
the shipper require money to save his goods or repair injuries
which may have happened to them, the lendier will acquire a lien
subsequent to the freight and general average. All those who
lend money on the cargo or on small .adventures, before the
departure, come into concurrence. If the merchant borrowed by
way of maritime loan in an intermediate port, in order to increase
his adventure, the second lenders are not preferred to the first.
They come into concurrence, because money borrowed in the

course of the voyage has not had for its object the preservation of
the common stock {Kwricke Quest.^ 25, f. 880 ZoGoeovnius, lib. 2,
;
ch. 6, n. 8, p. 993). The privilege of the lendel* by maritime loan

is of public importance, and is, therefore, preferred to that of the
vendee, who has not been paid for his merchandise. Wliere a
person purchases merchandise on credit, and also borrows money
by maritime loan on the same effects, from the moment of the
loan the effects become pledged to the vendee, who furnished,
money only on the faith of the goods. The French ordinance, in
speaking of a vessel which has not yet put to sea, places the
.vendor among the privileged creditors, and gives him a preference
to the lenders on the hull, because the risk does not commence
until, the ship has weighed anchor. But the risk on the lading
commences the moment it is put on board. The right of the
shippers to a lien, is consummated by landing the goods, and that
774 JÂW or MARITIME LOANS.
of the lenders by the departure of the ship ; and since the vendor
of a ship which has put to sea is exchided by the lenders on the
hull, the vendor of merchandise on board should be excluded by
the lenders on the cargo. He who
buys merchandise on credit
may dispose of it according to his own
pleasure. If he ship it, it
is because he supposes he will find a better market. If he borrow
money by maritime loan on the goods, the lenders have a lien and
special privilege on the effects embarked and their returns in pre-
ference to a vendor, who cannot reclaim the thing sold, much less
its returns, to the prejudice of the lender.Such has always been

the understanding of the law on the continent of Europe, and the
same is doubtless the rule here.
A charterer who has hired the whole capacity of a vessel, and
loaded her with goods of other parties, the freight of which exceeds
the amount of the charter money, is entitled to be paid such
excess out of the freight money in. preference to the holder of a
bottomry bond upon and cargo, executed after the
ship, freight
charter party; so held by the United States District Court for the
eastern district of Ifew York {Freight Money of the Anastasia,
1 Benedicfs D. C. B., 188). And it has been held by the Eng-
lish Admiralty Courts that a bottomry bond cannot affect a previous
contract in a charter-party, so as to take precedence of money
advances made subsequently to the bond, under the authority of
the charter-party {TJie Salada, 32 Z. J. Adm., 43). But the same
court has recently held, in conformity to the doctrine understood to
prevail in the United States, that a bottomry bond is entitled
to priority over a mortgage during the voyage for which the bond
was executed. The court declared, however, that when the bond
becomes due it should be enforced within a reasonable time, and
that a voluntary agreement on the part of the holder to postpone
payment under it alters its character totally, and substitutes a con-
tract over which the Admiralty Court, at least, has no jurisdiction
(The Royal Arch, 1 Swabey's Adm. R., 269).
A loan " upon the goods to the amount of the loan, laden or to
be laden on board, or which may be laden on board at any time
during the voyage," gives the lender only a lien on the homeward
cargo, which will be postponed to a claim of the United States on
the obligor. But delivery to the obligor of the homeward bill of
lading, after the ship's arrival, converts his equitable into a legal
LIUNS NOT TO BE IMPLIED. 775
interest {AtUmtio Insurance Company v. Con/rod, 4:Wash. C. C.

J2., 662).
"Where bottomry bonds are given as collateral security for debts
due, that fact may be shown if the interests of third persons are
thereby to be affected, notwithstanding the recital in the bond
that they are given for money lent and advanced {Greeley y. Water-
home^ 1 App. R., 9).
Eeference has been heretofore made with respect to the time
within which a party should prosecute his lien upon a vessel in
order to enjoy the benefit of the same, was stated that the and it
matter must be attended to within a reasonable time. So the

courts hold ( Vide The JoJm Lowe, 2 Ben. C. G. R., 394). But
it has been decided that there is no fixed time for liens to expire
which exist at common law, except the time of parting with the
possession, and none in maritime liens where possession does not
exist with them exclusively, except the end of the next voyage, or
the intervention, after it, of rights of third persons without notice

{Packard The Louisa, 2 Wood^.
v. c& Minot's G. C. R., 48 ; and
mdeBwTce v. The M. P- Rich, 1 GUff. G. O. R., 308).
It should be added here that it is a maxim of the common law
" that a lien never takes place without an express law to authorize
it." And another rule, not less general, is, " that liens of every
sort are regarded with a jealous eye, because they are prejudicial
to third persons." It is for this reason that they are never implied.
It is always necessary that there should be a formal obligation exe-
cuted which produces a conventional lien, or an express law which
creates a legal lien ; otherwise there is no Hen, nor can there be
by any construction or implication.
Liens are stricti Juris. They cannot be extended from one case
to another. Eespecting them there is no arguing by deduction or
analogy. The lien must be created by the law itself. If the thing
which is the subject of the lien be extinct, the lien These is lost.
are general principles, which apply as well to maritime liens as to

others. The maritime law gives no lien by implication ( Vande-
water v. Yankee Blade, 1 MoAll. G. G. R., 9).
Bottomry is a peculiar contract, differing essentially from a loan
with security, and is inconsistent with the existence of the lien
implied by the marine law to secure advances to a master in a
foreign port to make necessary repairs. "Where the express con-
tract of bottomry is void for fraud, no recovery can be had upon
776 LAW OW MARITIME LOANS.
the footing by an implied contract and lien {The Brig Ann C

Pratt, 1 Curds, C. 0. E., 340). And it has been decided by the
Supreme Court of the United States that the fraudulent taking of
a bottomry bond for a larger amount than the actual advance
vitiates the bond and avoids the bottomry lien ; and that the party
taking it, under such circumstances, has no lien upon the vessel for
his actual advances under the general maritime law {CarringtonY.
Pratt, 18 How. U. &. C. R., 63).
CHAPTER LXII.
THE BOTTOMET BOND FORM, INTEEPBBTATION AND EFFECT OF IT —

REQUISITES OF THE CONTBACT OF BOTTOMKY OTHEK 8E0UEITY
MAT BE TAKEN WITH THE BOTTOMEY CONTEACT THE LENDEe's —
REMEDY IN CASE OF MAEITIME LOANS THE EOEM OF THE
DECREE IN ADMIRALTY.
It has been stated in a previous chapter that bottomry and

respondenHa are, in their nature and effects, quite similar. The
first gives a lien on the ship the latter gives a lien on the cargo
;
of a ship. In all other respects, bottomry and respondentia are

declared to be identical ; so that in giving the form, interpreter
tion and effect of the one, the same is substantially given of the
other.
The elements of the contracts of bottomry and respondentia are
all sanctioned by well-settled principles ; and in respect to their
form, it is only necessary that they embrace, substantially, the
terms upon which they are upheld. The contract involves an
advance of money at a premium beyond the statutory rate of inte-
rest for the purposes and objects recognized by law, dependent for
its return on the result of a real risk —
a risk in which the lender, in
good faith, hazards his money. Where these features of the trans-
action all appear in the contract, its form will be sustained.
It is absolutely necessary that the liability of the lender to the
sea risks should appear or be fairly collected from the instrument,
otherwise the reservation of maritime interest will render the secu-
rity void on the ground of usury, not only as a charge upon the
ship, but borrower {Maitland v. The
also against the person of the
Atlantic, 1 N'ewlmry's Adm. P., 514). And it is essential to a
valid bottomry bond, such as gives an Admiralty Court jurisdiction,
RMQUISITES OF BOTTOMBT CONTRACT. 777
that the debt be risked on the bottom and loss of the vessel; and
that the loan be at maritime interest. If these elements are want-
ing, the contract will be deemed a mere mortgage, notwithstand-
ing the instrument may be
called a bottomry bond. To this effect
are the authorities( Vide Ldand v. The Medora, 2 Woodb. cfe
Mmofs R., 92 Gredey v. Smith, 3 ii., 236, 248). If the lender
;
of money on a bottomry or respondentia bond be willing to stake

the money upon the safe arrival of tbe ship or cargo, and to take
upon himself, like an "insurer, the risk of sea perils, it is lawful
and reasonable that he shoiild be authorized to demand an extra-
ordinary interest to be agreed on, and commensurate to the hazard.
But all these elements are essential to appear in the bond, or its
effects may be changed and the objects of the parties defeated
{Maitland The Atlantic, 1 Newbwry's Adm,., R., 514).
v.
An instrument which was executed collateral to a bill of
exchange drawn by the master of the vessel upon her owner, pro-
vided as follows " For the better securing of payment of the
:
said bill of exchange, etc., in any port where the said brig may be,
I do hereby bind myself, the owner of the said brig, and particu-
larly the said brig, her tackle, etc." The United States Circuit
Court for the southern district of New York held that the instru-
ment was not a bottomry bond, within the sense of the maritime
law. Neither marine risk nor marine interest was provided for,
and the personal liability of the master and owner was secured.
And dt was declared that all that was stipulated by way of
hypothecation was a lien on the vessel until payment of the debt
{The WilUam <& Emeline, 1 Blatoh. S Mow. Adm. R., 66). It
may be affirmed, however, that a personal liability, in case the ves-
sel is not lost, is harmless in the contract of bottomry. It is only
a personal liability which continues, notwithstanding the loss of
the vessel, which is regarded as inconsistent with the contract of
bottomry {Greeley v. Smith, 3 Woodb. <& Minots R., 236).
Judge Bouvier observes " The form of the contract is either

:
by bond, or bill of bottomry. The contract should state 1st. :
The sura loaned, and at what interest or maritime profit; 2d. The
subject upon which the loan made. 3d. The name of the ves-
is
Bel and of the captain, Those of the lender and boiTower.

ith.
6th. The description of the voyage, its commencement and ter-
mination " (1 BovAj. Inst., 507).
Parties preparing the contract in cases of bottomry and respon-
98
778 ,
LAW OF maAitimm loans.
d&ntia, by carefully observing these rules, may avoid uncertainty

and mistake, and thereby save litigation, damage, cost and expense.
The sum loaned and at what interest; the thing pledged; the
names of the ship and the captain the names of the lender and
;
borrower, and the description of the voyage, or the term for which
the loan is made, are all indispensably necessary to be expressed
in the contract, and the form should be cautiously observed.
According to the form of respondentia bond used in Philadelphia,
it seenis that payment of the debt
and marine interest depends on the
safe return of the goods, and not on that of the ship. The bor-
rower, therefore, is obliged to pay if he receives his goods safely,
though by another ship. The words "an utter loss of the ship,"
in such bond, means an actual, total loss, and not a constructive
one {Permsylvania Insurance Gom/pcmy v. Dvmal,, 8 Serg. &
RawWs JR., 138). And where the parties to such bond agree
that the lender "shall be liable to average and 'entitled to the
benefit of salvage, in thesame manner as underwriters on a policy
of insurance, according to the usages and practices of the city of
Philadelphia," the court holds that the borrowier is not entitled
to calculate an average on the whole amount of the money
loss
loaned on marine interest, but only on the cost and charges on
board and the premium of insurance {G'ihson v. 'PhUadel^Ma
Insurcmce Company, 1 Bvnney's R., 405).
Another Philadelphia case was this Money was loaned at Phila-
:
delphia on respondentia by the ship J., at and from Liverpool to

Canton, and thence to Philadelphia. N"o bond was executed at
the time, as it was not then known whether the shipment at Liv-
erpool would be in specie or goods, but the bond was to be given
subsequently and in the meantime the parties agreed that bills
;
of lading outward at Liverpool for $17,000 if specie should be

shipped, or for $20,000 value of goods at par if specie should not
be shipped, " in which case the lenders should only be liable for
average and entitled to salvage, as had been a specie ship-
if it
ment." And Canton should

also bills of lading of the returns at
be assigned to the lenders as collateral security for the bond to be

given. The vessel sailed from Liverpool with 700 pieces of goods,
of the value of $20,000, but without specie, and was stranded and
lost and forty-five pieces of goods were lost, and the remainder
saved, but damaged. The court held that the lenders were not
liable for the damage of the goods saved, but only for those which
RBQUISITES OF BOTTOMRY CONTRACT. 779
were lost, the true construction of the contract being that they
should be exempt from damage as they would haye been if specie
had been shipped (Dela/wa/re Inswramce Go. v. Archer , 2 Mawleâ
B., 216).
• Abbott, in his work on Shipping, says: "There is no settled
form of contract in use on these occasions. Sometimes an instru-
ment in- the form of a bond, at others in the form of a bill of sale,
at others of a different shape, is made use of. But, whatever
the form, the occasion of borrowing, the sum, the premium, the
ship, the voyage, the risks to be borne by the lender, and the sub-
jection of the ship itself as security for the payment, all usually
are, and properly ought to be, expressed. It is absolutely necessary
that the liability ofthe lender to the sea risks should appear to be
fairly from the instrument, otherwise the reservation
collected
of maritime interest will render the security void on the ground
of usury, not only as a charge upon the ship, but also against the
person of the borrower. And, where an instrument called a bot-
tomry bond contained an express clause that the sum secured be
paid within thirty days after intelligence of the loss. Lord Stowell
doubted his jurisdiction to entertain the suit at all, and dismissed
it on the ground that the very essence of bottomry, which alone
could give jurisdiction to the admiralty, was wanting {The Atlas,

2 Hogg. Admh. R., 57). From this sentence an appeal was pre-
sented to the delegates and that court, after directing a search for
;
precedents, decided that, as maritime interest was reserved and

maritime risk excluded from the bond, it was void " {Abbott on
Shipping, 158).
An important case came before the English Court of King's
Bench many years ago, wherein it appeared that, in a^responden-
dia bond, the condition, after reciting that the money was lent
'wpon the goods laden and to he laden on board, a certain ship
should proceed on her voyage and return within thirty-six months

(the dangers of the sea excepted) and if the borrower, within
;
thirty days after her arrival, should pay to the lender the sum
agreed on, or if, in the voyage and within thirty-six months, the
ship should be lost by fire, enemies or other casualties, the bor-
rower should, within six months after such loss, pay to the lender
a proportionable average on all the goods carried out and acquired
during the voyage which should be saved, then the obligation to
be void. The court held that this was no more than a personal
; .
780 J^-AW OF MARITIME LOANS.
obligation from the borrower to the lender, and did not give the
latter any sêci^c pledge or Uen on the home cargo or the proceeds
thereof.
'
Lord Ellenborough, 0. J., in his opinion, said : ' This appears
to be a contract not of universal nature, but depien ding upon the
particular form of the instrument, varying in difiEerent countries.
In Spain it seems more like a direct hypothecation of the goods
which would make all the difference in the construction. But

nothing of that sort is to be found in this instrument. In the
introductory part, instead of the condition, the money is stated to
be lent on the goods ; but that is explained in the subsequent part,
and shown to be only a pledge for the purpose of salvage. And
no action could be maintained by the obligor to recover possession
of those goods from the borrower, or any other having, also, a
claim upon them for, admitting that the borrower and lender
;
were even partners in them, the latter could not maintain trover
against the other. We must construe the contract upon the words
of this bond, such as these parties have made use of ; for it is this
contract, and not one of a general nature, to be governed by gene-

ral usage, that they have entered into. If, indeed, there were any
^
word used of doubtful signification, it might be construed by

general usage. But here the terms of the bond are very plain
and intelligible, and amount only to a personal obligation on the
borrower " {Bush v. Fearon, 4 JEcisfa H., 319),
Where a bottomry bond is given upon vessel and freight it
binds them only, and not the cargo, although in a recital in the
bond it is stated that the master was necessitated to take the sum
loaned on the vessel, her cargo and freight. If the omission was
by mistake, and is so stated in the libel, it is held that it might be
reformed. Where the freight is pledged generally, it includes the
whole freight for the voyage which the ship is in the course of
earning and not merely freight to be subsequently earned, as
;
upon a new contract. Upon any other construction, where the

vessel is repaired at an intermediate port, without any change of
her cargo, no freight at all would be hypothecated, for no distinct
freight would grow due for the voyage from the port of repairs*
The freight ultimately paid need not be divisible. Where the
parties pledge freight, it must, in the absence of all other counter
proofs, be presumed that they mean the freight to be earned by
the ship in the course of the voyage, which has been interrupted
SMQUISITE8 OF BOTTOMRY CONTRACT. 781
by the disaster. Such was the construction put upon a bottomry

bond which came before the Circuit Court of the United States
for the first circuit in 1824, and it seems reasonable and proper
[The Zephyr, 3 Ma/rme G. G. R., 341).
A construction has lately been put upon a bottomry bond, in

the English Court of Chancery, which is quite important as a
reference. The master of a ship executed a bottomry bond upon
the ship, the condition of which was, that if the ship should arrive
at the end of her voyage, and, on such arrival, the amount of the
bond should be paid to the. lenders, or, in case of the loss of the
said ship, such an average as by custom should have become due
on the salvage, or if, on the voyage, the ship should be utterly

lost, cast away, or destroyed in consequence of the perils of the
sea, then the bond should be void. The bottomry bondholder
effected an insurance on the bottomry boncj against the perils of
the sea, etc. The ship was, by the perils of the sea, so much
damaged as to be not worth repairing, and was sold by the master
for a sum much less than the amount of the bond. The court
held that the condition of the bond only referred to an actual,
total loss of the ship, and not to a constructive total loss ; and that
there had, therefore, been no loss of the bond within the policy
and the bondholder was not entitled to maintain an
of insurance,
actionupon it against the insurers {Bloomfield v. The Southern
Insurance Gompany, 22 L. T. R. Ex., 371 and vide 2 Albany ;
Law Journal, 92).

It has been held that a loan " upon the goods, to the amount of
the loan, laden or to be laden on board, or which may be laden on
board at any time during the voyage," gives the lender only a lien
on the homeward cargo, which will be postponed to a claim of the
United States on the obligor. i But delivery to the obligee of the
homeward bill of lading, after the ship's arrival, converts his
equitable into a legal interest. And it was declared that no fraud,
practiced by the borrower or his agents, can affect the validity of
the bond, if the lender do not participate therein {Atlantic Insur-
ance Gompamy v. Conrad, 4 Wash. G. C. R., 662).
Bottomry bonds are not to be construed literally, but, liberally,
80 as to carry into effect the intention of the parties. Accordingly,

it has been held that the holder of a bottomry bond will not lose
hismoney where the non-performance of the voyage has not been
occasioned by the enumerated perils, but has arisen from the fault
782 L.A.W OF MARITIME ZOANS.
or misconduct of the master or owner. And it was held in the

same case that, in cases of bottomry, a loss, not strictly total, can-
not be turned into a technical total loss, by abandonment, so as to
excuse the borrower from payment, even though the expenses of
repairing the ship exceeds her value {Pope v. Niokerson, 3 Story^s
R., 465).
In respect to the remedy which the lender has upon a bottomry
or respondentia bond, the question is ordinarily a very simple one.
As a general rule, he has his remedy by action of covenant or debt
at common law for a breach of the stipulations, or forfeiture of a
condition of the bond. But when the lender desires a specific per-
formance of his bond, his remedy is in a court of equity or of
admiralty. The contract of bottomry is one over which the admi-
ralty especially exercises an undisputed jurisdiction. Indeed, it
has been held to be the only tribunal capable of enforcing a specific

performance in rem by seizing into its custody the very subject of
hypothecation {The Jerusalem, 2 Oill. R., 191, 196). And if
seems that a proceeding m rem may be maintained in our courts
against property within our jurisdiction, although the parties may
be foreigners. It has been so held in our own admiralty courts
{Davis V. Leslie, Abb. Ad/m. R., 123); and the same doctrine has
been recognized and expressly approved by the Courts of Admiralty
in England {The Qdbelchick,\Wm. Rob. R., 143).
It has been held by the United States Circuit Court for the
first circuit that the admiralty has jurisdiction over maritime con-
tracts in personam and also in rem, where there is a maritime lien
or express pledge as security ; and this embraces a bottomry bond
given by the owner in the home port, where there is an express
pledge as security {The Draco, 2 Sumner's R., 157; and vide
Wilmer v. The iSmUax, 2 Pet. Adm. R., 295, note). This case
ofThe Draco was disapproved as unsound in a much later case, but
followed nevertheless as an authority {Greeley v. Smith, 3 Woodb.
c& Minofs R., 236). A bottomry bond given in a foreign port by
the owner himself, and without necessity for the ship, is held to be
a maritime contract, cognizable in the admiralty, as well as a bond
made by a master. It is held that there is no reason for any dis-
tinction {The Mary, 1 Paine's C. C. R., 671). And the general ,
doctrine was declared at an ,early day by the Circuit Court of the

United States.
Story, J., said :
" In my judgment, and I speak after having
REMEDY ON BOTTOMRY CONTRACT. 783
given the subject a very grave consideration, the admiralty, has

always rightfully possessed jurisdiction over all maritime con-
tracts, and the decisions of the courts of common law prohibiting
its exercise, are neither consistent in themselves nor reconcilable
with principle. In the struggle between the courts of common
law and the admiralty, which originated in the same spirit that
attempted to break down the whole system of equity, it cannot be
denied that the former have manifested a great degree of jealousy
and hostility, fostered by strong prejudice and a very imperfect
liôwledge of the subject. It is not, therefore, to be wondered at
that in such an unequal contest, where the power was all on one
side, the admiralty should have lost many of its inherent rights.
In more modern times, when the jurisdiction of the admiralty has
been better understood, a more liberal policy has been prescribed,
and, where they have not been fettered by authority, judges have
been more indulgent in allowing its exercise. The true doctrine
was. always asserted by the learned judges of the admiralty, and
has been recently recognized by Mr. Justice BuUer, that the juris-
diction as to contracts depends not upon the locality, but upon the
subject-matter of the contract {Menetone v. Giibons, 3 T. R., 267).

And I have not the slightest hesitation in holding that the admi-
ralty has perfect jurisdiction over all maritime contracts. The
decisions at common law on the subject of jurisdiction have
its
nothing to recommend them, and certainly are not binding on us "

{The Jerusalem, 2 GalUson's G. C. E., 345, 348). '
It has been stated in another place that in respect to contracts of

bottomry and the application of rules of admiralty to them, depend-
ing.upon the question of their being executed in foreign ports, the
various States of the American union are to be regarded as foreign
to each other. It seems pertinent to repeat the doctrine under the
present head (
Vide The William a/nd Emmelvrte, 1 Blatch. &
How. Adm. R., 66 The Hilarity, II., 90).
;
It has been held by the Court of Errors and Appeals of Missis-

sippi that the legislature has no authority to create maritime liens,
or confer jurisdiction on State courts to enforce such liens by pro-

ceedings m
rem, ; and that such jurisdiction is exclusively in the
Courts of Admiralty, of the United States. A suit was brought
against a vessel by name, and. the vessel attached under the water-
craft laws of Mississippi, for a debt due the plaintiff. The plain-
tiff made an affidavit that the defendant was a steamer in the navi-
784 LAW OF WARITIME LOANS.
gable waters of the State, and in his declaration set forth that he
was a citizen of Mississippi, and that the " home port " of the ves-
sel was in that State. But it was held that the court had no juris-
diction, the case being one of admiralty.

Shackelford, J., who delivered the opinion of the court, admitted
that the statute gives the remedy, in the State courts, to the
creditor, whether the vessel is engaged in trade exclusively
between ports in the same State or ports in different States. But
he held, upon authority, that the jurisdiction conferred by the act
of congress of 1789, on the District Courts of the United States in
civil cases of admiralty and maritime jurisdiction, is exclusive by
express terms, and that this exclusion extends to State courts
{Deever v. 2'he Steamer Sope, 9 Am. Law Beg., JV. S., 683).
This doctrine seems to be in accordance with the decisions of

the Supreme Court of the United States. In a late case, the
owner of the vessel excepted to the jurisdiction of the Circuit
Court of the State of Alabama, and alleged that the vessel, at the
time the cargo was shipped, was duly enrolled and licensed under
the laws of the United was then and there
States ; that she
engaged in commerce and navigation between the city of Colum'
bus, in the State of Mississippi, and the city of Moljile, in the
State of Alabama, and that the cargo described in the libel was
lost on her trip from the former city to' the port of destination.
In one of the shipments mentioned in the libel, the cargo was
shipped from a port in the State of Alabama to the city of Mobile,
but the cases were decided together. The counsel for the libelants
contended that inasmuch as the cargo was shipped in one of the
cases from ports in the same State, the State court had jurisdiction
of that case, impliedly admitting the jurisdiction of the court
would not attach, if the cargo had been shipped from a port in a
different State to the city of Mobile.
The court, after an elaborate review of most of the decisions of
the Supreme Court of the United States, involving questions of
jurisdiction in cases of admiralty, held that the State court in
Alabama had no jurisdiction of those cases, including the one
where the cargo was shipped in Alabama, and declared that the
exclusive original cognizance of all civil causes of admiralty and
maritime jurisdiction is, by the terms., of the ninth section of the
judiciary act of 1T89, conferred upon the District Courts of the
United States, saving to the suitors, in all cases, the right of a
$
BEifMBY PN SOTTOJIfBr CONTSACT. 785

common-]aw remedy, where ]tfae common law is competent \o giye
it. Mr. Justice Cliffpfd, in his opinion, reviewed the case of

Allen T. Mewbury, previously decided by the court, and reported
in 21 Howard's Bepprts, 244, and which was supposed to hold a
contrary .doctrine, and observes " Eemarks, it is conceded, are
:
found in the opinion of the court in the case of Allen v. Nêw-

Imy, inconsistent with these views, but they were not iiecessary
to that decision^ as the contract in that case was for the transpor-
tation of goods on pne of the western lakes, where the jurisdic-
tion in adnjiral^ty is restricted, by an act of congress, to stpamboal^
^nd other vessels employed in the business of commerce and navi-

gation betweêji ports and ,pl?,ces in different States and territories"
{^TheBdfast,n Wallace's R.,Iq'2,^.
In JEnglj^ndj it seems that the admiralty jurisdiction extends to
bottomry bonds when made abroad fpr the necessities of the vpy-
age, whether made by the master or th,e owner {Duke of Bedford,,
2 Hogg. Adm. R., 294). But this rule does not extend to bot-
tomry loans made. by the owner in the home port {The Barbara,
4 Rob. R; 1 ; Johnson v. Shippen, 2 Lord Raym. R., 983), In
this latter .respect, the rule is different in the United States, as
has been before shown.
It may be added that, in makjiig a decree upon a bottomry
bond, the principle is to consider the sum
lent and tlie premium
as a principal, and to allow common ,mterest on that suni for the
delay of payment after it is due. This has been stated in another
place, but should be repeated here ( Vide The Packet, 3 Mason'
aa R., 255).
CHAPTER LXIII.
.SOME POINTS EESPECTING MAErTIME LOANS SETTLED BY AUTHOErTT,

PKOMISOUOUSLT STATED.
'Though the form of bottomry bonds differs in different coun-

tries in respect to the obligation of the owners, the established
doctrine in England and America is, that the owners are not per-
sonally bound, except to the extent of the fund pledged, which
comes into their hands. The Supreme Court of the United States
"have held, that to this extent tJiey may be gaid to be pergpually
99
786 LAW OF MABITIMM LOANS.
bound, as thay cannot subtract the fund and refuse to apply it to

discharge the debt. The court further declared that, where the
ralue of the ship, being the only fund out of which payment can
be made, falls short of the full amount due upon the bond, this is
the misfortune of the lender and not the fault of the owners. The
latter are not to be personally responsible because the fund turns
out to be inadequate (The Virgin v. Vyfhms, 8 Peters^ R., 538 ;
cmd vide The Nelson, 1 Hag. Adm. R., 176 ; The Ta/fta/r, lb.,
1, 13). In some countries bottomry bonds bind the owners in ;
others, not. And where they do not, even though the terms of
the bond should affect to bind the owner, that part would be insig-
nificant, but it would not at all touch upon the efficiency of those
parts which have an acknowledged operation.

A bottomry bondmay be held good in part and bad in part.
The rule of the common law, that the bond must be good in all or
not at all, does not prevail in admiralty, which act* as courts of
equity. So far as the money was properly advanced, the bond
may be held to give a valid lien, and be dismissed as to the rest
{The PaoM, 3 Mason's O. G. R., 255 The Bmder, Wa/re's JD. G.
;
R., 249 Furnies v. The Magown, OlooU's B. C. R., 55V But

;
the cases in which a bottomry bond has been held good in part
and bad in part have been cases in which the items rejected, were
not properly chargeable on the ship, or were embraced within the
bond from inadvertence or mistake^ but not fraudulently. "Where
the objectionable items are fictitious, and inserted in the bond with
an intent to defraud third persons, the entire security becomes
tainted, and a party to the fraud is not allowed to enforce it, even
for the sum actually advanced. If, in such cases, the security were
held valid to the extent of the loss, rejecting the excess, the guilty
party would risk nothing, foi-, when detected in the fraud, he would
still be able to maintain himself for the amount due. The rule
of a court of equity or of admiralty is, therefore, in such cases, to
leave the parties where it finds them. For this reason, where a
bottomry bond was taken for a larger amount than was actually
advanced, with a fraudulent purpose to enable the owner of the
vessel to recover the amount of the bond from the underwriters,
the Supreme Court of the United States held that the bond was
void {Garrirngton v. Pratt, 18 ffow. R., 63 ; vide The Ann G.
Pratt, 1 CiM. G. G. R., 340).
Jf, after the risk on a bottomry bond has commencedj a sale oi

BHilUDY ON BOTTOMBT CONTRACT. 787
transfer of the vessel takes place, or the voyage is in any manner

broken up by the borrower, the maritime risk terminates as in the case
of a policy of insurance, and the bond becomes presently payable.
The vendee, in case of a sale, is not liable to the bottomry lender
for either principal or interest. Nor can he, on the other hand,
entitle himself, as vendee, to any benefit of the bottomry bond.
The sale of the vessel terminates all interest in the borrower ; not
only his interest in the voyage, but his power over the voyage.
The bottomry bond is a contract for any voyage during the limited
period carried on by the borrower, as owner, and not ultra. This
was so held by the United States Circuit Court in a case where the
bond contained a special clause restricting any sale of the vessel
during the risk {The Draco, 2 Sumn. C. O. H., 157).
It was held by the late Chief" Justice Taney, sitting in the United
States Circuit Court of the fourth circuit, that if the owner of the
cargo stands by and suffers the cargo to be sold under a bottomry
bond, without requiring evidence of the necessity for the repairs,
it will not avail him, in an action against the shipowners, to show
that the necessity did not exist {Wayhr v. JBaltsell, Taney's 0. G.
R., 55). And the same distinguished court decided some other
quite interesting points in another bottomry case. O. haviiig made
advances for repairs of a schooner, the title to which, according to
her papers, was in D. (a relation of one of the firm of W. & Co.),
sent the bottomry bond to W. & Co. for collection, supposing
them to be her charterers,' whereon they indorsed an acquittance
acknowledging themselves to' be the sole debtors to O. W. & Co.
had previously written to O. that they were her owners. After
maturity of the bottomry debt, 0., not knowing of the acquittance,
sued "W.& Co., and obtained judgment on an account in which the
amount of the bottomry bond was included. Afterward one H.
purchased the schooner, knowing all these facts.
On a libel filed by O. to enforce his bottomry lien, the court
held, 1. That the acquittance was a fraud upon the libelant and a
mere nullity, and did not in any degree impair the seeurityof the
bottomry bond. 2. That O.'s suit against "W. & Co. did not
amount to a waiver of the bond, but would have been a waiver if
brought by O. with a knowledge of all the facts. 3. That H.

could not hold the vessel discharged from the lien of the bond,
inasmuch as he purchased her with notice of 0,'s claiin {Henoig y.
OaUey, Twney's C. C. B., 389),

The United States District Court of Ehode Island tas recently

held that where a vessel is libeled and sold on a bottomry bond, the
bond in court is not subject, as against the bondholder, to any
claim for a general average loss subsequent to the dat6 of the bond
{Odloga/rdt v. The Arma, 9 Am. Law Reg., If. S., 475).
been held by the courts both of England and this country
It has
that, where bills of exchange are given as collateral security for a
bond of bottomry, the bills do not destroy the validity of the bond
{The Augusta, 1 i)od. B., 283 The Jams, II., 461).

; bill of A
exchange, in such a case, is not an independent security payable at
all events. and is subject to the same
It is collateral to the bond,
contingenciesand a discharge of one security is a discharge of both
;
{The Hvmter, Ware's D. C. B., 249). Even if the bottomry bond is

indorsed. as collateral security for the bill of exchange, the bond
will not be vitiated by the bill, provided the security by the bot-
tomry was contemplated on the advance {The Taxta/r,\. Hagg.
Adm. B., 1 TTie ifdson, H., 169, 1^9 The Emancipation, 1
; ;
Bob. B., 124; The Madora, 2 Woodb. <& Minofs O. G. B., 92).
But it is requisite in all cases, however, that the bottomry should
be the original security, although there is no objection to the lender
taking security additional to the bottomry bond {The Ariadne, 2
Wm. Bob. B., 421),
Some very important principles were enunciated, in a comparar
tively recent case, before the English Court of Common Bench,
involving questions of bottomry. The court held that the master
of a vessel has no authority to hypothecate the ship for money bor-
rowed at a foreign port for necessary repairs and disbursements,
and l>y the saTneimstrument pledge the personal credit of his owner
for such advances, whether maritime interest be stipulated or not.
But it was declared that a bottomry bond may be given at the same
tinê with, and as collateral security for, bills drawn on the owners
for moneys so borrowed.
The master of the vessel finding it necessary to borrow money
in a foreign port, under circumstances which would justify him in
borrowing the saine in the usual way upon bottomry, borrowed a
.certain sum of money and executed an instrument to the lendei-s,
by which there was a distinct hypothecation of the ship, her cargo
and freight, and then contained a separate and distinct reservation
pf a right to the lenders to resort to all legal means to enforce
repayment of the money, either against the ship or her owners.
:
EFFECT OF BOTTOMBT CONTRACT. 789
Parkje, Barpn, delivered the judgment of the court, and said

"As to the principal question : The njaster of a vessel on a foreign
y.oy?ge hîS no authority to feind his employer to everything which
h,e jmay deem to he, or which really may be, for the interest of his
employer ; but the law, lojpjking to ,the ordinary perils inseparable
j&;o,n;i navigation, gives him certain pow,erSj iji ,ord,er to provide for
the completion of ,the voyage, and, amongst others, the power to
ple,dge in a foreign country the personal credit of the owners for
^^cessary repairs if that should be ineffectual, a power to
; and,
by an instrument of hypotlêcation. But this
|)ledge the ship itself
power does not extend to more than hypothecation, well known in
t;he civil law, and distinguished froD^ a mortgage, as well as a
pledge or pawn a,t common law —the fornêr of which tranfers the
property, the la,tter a lien on the chattel--and is void without
.actual posse^sfion; but hypothecation gives only a right, to be
enforced against the subject of it through the medium of process.
If o authority has been cited, nor are we aware of any, authoriz-
ing the .actual transfer of jthe properi^y by the master by way of
pqrtgage in ,any case. The instrviment, therefore, in this case,
could iiot be effectual to tra-nsfer any propcjrty to the assured.
The ma^tea" having the po-yver of hypothecation, only \p be
enforced against the ship by admiralty process, the first question
is, whether the hppthecation in this form is valid. We agree with
the .Coiirt of Common Pleas in their opinion that it is not and ;
therefore my brother Alderson was right in directing the issue on

the interest to be found for the defendant " i^Stavn^ômJc v. Shepar4,
AfT.Scptfs R., 418, 442; S. G., T6 Eng. G.G. B., 417, 441, 442).
Jn an important case before the English admiralty, Ijord Stowell

says: "One objection is, that it (the, instrument under cpnsidera-
tion) binds ,theowners persondUy as well as the ship ^rA freight,
%Kich cannot dp. Here we don't take this bond in toto, as is
it
done in other systems of law, and reject it as unsound in the

,
whftle if vicious in any part. But we separate the parts, reject

the vicious, and .respect the efB.ciency of those which are entitled
to operate. The form of these bonds is different in different

countries; so, is their authority. In some countries they bind the
owner or, owners ; in other.s not ; and, where they do not, though
the form of t|ae bond affects to bind the owners, that part is insig-
nificant, bjjt does not at all touch upon the efficiency ,of those parts
which have an acknowledged operation." The instrument with
which the learned lord was dealing was, in form, a bottoniry bond,
securing maritime interest {The Nelson, 1 Hogg. Adm. R., 176).
A
British ship, upon which a bottomry bond had been taken,
payable on the ship's arrival in England, was sold by the master,
as unseaworthy, at public auction, and, with the consent of the
British consul at Babia, to a foreigner, who repaired her, changed
her name, and sent her to England. There was no evidence of
notice of the bond having been given at the sale. The court, not-
withstanding, held that the ship was still subject to the bond
{TTie Catharine, 1 Eng. Loajo and Eg. R., 679). But in another
ease, it appeared that a British ship, being damaged, was repaired
at Elsinore, where she arrived on the 18th of October. S. & Co.
undertook the management of, and ordered the repairs, and cor-
responded with the owner of the ship and part-owners of the

cargo, but gave no intimation to them or the master of their
intention to take a bottomry bond as a security, for many weeifs,
and only just before the ship sailed. The bond was pronounced
against by the court, with costs, on the ground that the repairs
were ordered, in the first instance, on personal credit, and that S.
& Co. should have given the master and owners immediate notice
of their intention to take a bond {The Wave, 4 Eng, Loajo and
Eq. R., 589).
A bottomry bond by a master is not valid unless given to enable
him where she is detained either for necessary
to leave a port
repairs or for claims upon her; she having there no funds, nor
credit, nor means of getting money {Gibbs v. The Texas, Crdbb^s
D. C. R., 236). And a libel cannot be sustained in the District

Court, brought on a bottomry bond executed in a domestic port,
for money neither loaned for, nor applied to, the purposes of the
voyage {Knight y. The AlMa, Oralis D. G. R., 326).
A bottomry bond on ship, freight and cargo was granted by the
master at the port where A., the owner of the cargo and charterer
of the ship, resided. Advertisements for the loan on bottomry
were published, and A. was aware of those advertisements, of the
unseaworthy condition of the ship, and of the fact that his cargo
had been laden and unladen while the ship was in the port but ;
no more direct communication was made to him, nor any applica-

tion for advances. The English admiralty held that the adver.tise-
ments were not suflScient noticeand the bond was pronounced
;
ÊFFECT OF BOTTOMRY CONTRACT. 791
against, so far as its interest was affected (The Nuova Loomese, 22

Eng. Lww <md Eq. B., 623).
The agent of a ship advanced money on a bottomry bond. The
bond was admitted, and, on reference to the accounts, it appeared
that one large item was on account of relanding damaged flour,
and which flour was the property of the agent. Another large
item was on account of money advanced to the master, without
inquiry as to 'the necessity of such advance, or seeing to the appli-
cation of the money. The report of the register, disallowing those
"items, was objected to ; but the court af&rmed the report {The
Rmjol Stuart, 33 Eng. Zom amd Eq. E., 602).
A Swedish vessel, boimd from a port in Sweden to HuUj in
England, was driven, by stress of weather, to put back into ano-
ther port in Sweden. This took place on the 21st of November,
1848. Ten days afterward the cargo was unladen, and the ship
found to be greatly damaged. The repairs were^ completed and
the cargo reloaded. The master at once communicated with the
owners of the ship, resident in Sweden, who, being without funds,
consented to the master taking up a bottomry bond for payment
of the necessary repairs and the British consul, at the port where
;
the vessel lay, wrote on behalf of the master, and as his agent, to
the consignees at Hull, informing them of the damage sustained
by the vessel, but made no application for money, nor referred to
the necessity of repairs. No answer was made to this letter and ;
the master, in the month of March, 1847, hypothecated the ship,

freight and cargo for the money borrowed for the repairs. The
court held that such letter to the consignees was a sufiicient notice
to authorize the master raising money by bottomry on the cargo.
It was declared, however, that, considering the distance between
Sweden and England, and the means of communication, it was

essential to the validity of the bond, so far as the cargo was con-
cerned, that the master should communicate with the owners of
the cargo before resorting to hypothecation of the cargo, as he
could have obtained an answer within a period not inconvenient
with the exigency of the circumstances of the case. But the notice
given on behalf of the captain being held suficient, the transaction
was sustained (
Wilkinson v. Wilson, 36 Eng. Law amd Eq.
B., 62).
It has been held by the English courts that fraud, practiced by
an owner or a mortgagee of a vessel, which might render the voy-
792 LAW or MABITIMM LOANS.
age illegal, does not invalidate a bottomry bond to a hondfide

lender {The Mary Ann, Law Reports, 1 Adm. <& Ecc. R., 13)
And the same court whicli decided the last mentioned case allowed
the holders of a bottomry bond leave to pay prior charges and
have a lien therefor on the ship, cargo and freight, on giving an
aflSdavit specifying such ehiarges, which^ in that case, were small
{The Fadrhaven, Law Reports, 1 Adm. da Eco. R., 67). And the
same coUrt made another important decision in respect to the lien
of a bottomry bond. The A master
facts of the case were these :
gave a bottomry bond on ship, freight and cargo, binding himself.

The proceeds of the ship, which had been sold, and the freight
were not suflBcient to pay both the master's claim for waês and
disbursements and the bondholder. The ship, freight and cargo
were sufficient. The master had no lien on the cargo. The court
held, the owner of the cargo opposing, that, there being sufBcient
to pay the bondholder, the master's claim should have priority
over the claim of bondholder, thus marshalling the assets between
them {The Edwa/rd Oliver, Law Reports, 1 Adm. & Ecc. R., 379).
The Supreme Court of the State of New York has recently
held that a bottomry bond is valid, although it includes the per-
sonal liability of the master, and that the master, in such a case, is
personally liable, on the bond, for the debt secured ; but not unless
the vessel arrives. There are cases expressing doiibts as to the
personal liability of the master, but those seem to be cases where
the master has attempted to bind the owners, and not himself.
The bond, however, must be made payable only after the arrival
of the vessel, and must assume the risk of the safety of the vessel
before it is payable. It seems, from this case, that the master may
.bind the freight, as well as the vessel, in such a bond, by express
stipulation ; but, in the absence of such stipulation, the bond will
create no lien on the freight, directly. But the master of a vessel
has a lien on the cargo and freight for advances made, or liabili-
ties incurred by him in a foreign port, for the repairs and supplies
of the vessel. And where the vessel is not of sufficient value to
secure the debt, and the master is not responsible, the creditor is
entitled to have this lien of the master enforced for the payment
of the debt incurred for repairs. And the court further held
that, where the money secured by a bottomry bond is not paid,
the lender, on proof of the insufficiency of the vessel as security,
and that the peduiiiary responsibility of the master is doubtful,
MASTER MAT CROATS LIEN, WBEN. 793
may have an injunction to restrain the owners from collecting the

freight of tJie cargo brought by the vessel on her homeward voy-
age {Kelly V. Gnshing, 48 Bm-h. B., 269 and vide Lewis v. Han-
;
coch, 11 Mass. R., T2 ; The Dowthorpe, 7 Jurist, 609).

Lord Tenterden, in his well approved work on Shipping, lays
down certain rules in respect to the geneiâl authority of the mas-
ter of a ship, which might have been inserted in a previous chapter;
but having been omitted there, may be appropriately given in this
place. The learned author says " As the master in general appears
:
to all the world as the agent of the owners in matters relating to the
usual employiaeiit of the ship, so does he also in iitatters relating to
the means of employing the ship ; the business of fitting out, victual-
ing aiiid manning the ship being left wholly to his management in
places where the owners do not reside and have no established agent,
own residence. His charac-
and, frequently, aJso in the place of their
ter and situation furnish presumptive evidence of authority from the
owner to act for them in these cases, liable indeed to be rebutted by

proof that they or some other person for them managed the concern in
every particular instance, iand that this fact was actually known to
a particulair creditor, or was of such geoieral notoriety that he can-
not be supposed to be, because he ought not to have been, ignorant
of it, or that they were, by the terms of the contract, expressly
exoluded." And in the following page he says :
" In order, how-
ever, to constitute a 'demand against the owners, it is necessary
that the supplies furnished by the master's order should be rea-
wncihl/y fit and •properfor the OGcasion, or that money advanced to
him for tlie purchase of them should, at the time, appear to he
wcmtmg for that py/rjpose. The contrary in
either case would
furnish a strong presumption of fraud and collusion on the part
of the Creditor. The proper mode of ascertaining what is neces-
sary, is to ask what a prudent owner himself would have done had
he been ipresent " iTent&rden on Shipping^ Sihed., 134, 135 and ;
vide Webster v. 8e4karwp, 4 Ba/rn. & AM. R., 852).

In respect to the authority of the master to create a lien upon
the ship, the Supreme Court of the United States, in December,
1871, decided that supplies furnished to a ship in a foreign port,
and necessary to enable her to complete her voyage and actually
so used by her, constitute a lien, unless it can be inferred that the
master had funds or the owners had credit ; a presumption difficult
to make where the owner is greatly embarrassed, and is raising
100
;
794 I'AW OF MARITIME LOANS.
money in the port where the vessel is, by mortgage of other vessels
owned by him. It was declared that the lien is of a high charac-
ter, is removed only by proof which
and, where once to be inferred,
actually displaces it. And
was held that entries in a journal
it
and in a ledger, charging apparently the owners, rather than the

vessel —
proof of the form of entry in the day-book not appearing,
owing to its being dispensed with by the material-man were not —
sufficient to displace the lien {The Patapsco, 13 Wall. R., 329
and vide the Lulu, 10 ib., 192 ; The St. Jago de Cuba, 9 Wheat.
E., 409).
In an important case in the English admiralty it was held that
the muster has a right to hypothecate the ship and cargo, though
lying in a port in the same country in which the owners reside,
provided he has no means of communicating 'wîth the owners.
Sir W. Scott said :
" It is true that it is usually required as a con-
dition, necessary to the validity of bonds of this kind, that they
should be executed in a foreign port, but the law does not look to
the mere locality of the transaction. The validity or invalidity of
the bond does not rest on that circumstance only, but upon the
extreme communication between the master and his
difficulty of
ownerb " {La Ysabel Bozo, 1 Dods. Adm. R., 273).

Parke, Baron, in giving his opinion in a case hereinbefore
referred to, discussing the subject of the validity of a bottomry
bond, says :
" We must not be supposed to intimate a doubt that
a bottomry bond may not be given at the same time with and as a
collateral security for bills of exchange drawn on the owner. This
was clearly laiddown by Dr. Lushington in the case of The Emam>-
cipation on the authority of many cases. If necessaries can be
provided on the personal credit of the owners or on a bill of exchange
drawn by the master upon them, a bottomry bond cannot after-
ward be given to secure the same debt, because the necessity of
hypothecating the ship is the condition of the master's authority
to do so {The Augusta, 1 Dods. Adm. R., 233). But bills of
exchange inay be drawn on account of the supply, and a bottomry
bond given at the same time as a collateral security in this sense,
that if the bills of exchange are honored {The Ndsrni, 1 Hagg.
Adm. R., 174), that is, accepted and paid, if they require accept-
ance, or paid if they do not, as the case may be, the bottomry is
discharged ; and though the ship arrives, the maritime interest is
not payable. If dishonored, the amount is payable on arrival by

;
SOME POINTS IN BOTTOMRY. 795
means of the remedy against the ship ; and in that case, with
maritime interest {^The Catharine, 3 Hogg. Adm. R., 267 ; The
Emancipation, 1 W. Rah., 129 ; The Atlas, lb., 421). So
that, in that event, if the bills are accepted the creditor would have
a. double remedy; one against the person of the debtor, and one
against the ship. But the law forbids the creditor to have a direct
remedy on tlie 'bond itself against the owner as well as the ship
and it makes it essential to the remedy against the ship that it
should be contingent on its safe arrival, and this whether maritime
imterest is required or not " {Stavribank v. Shepa/rd, 4 J. Sootts Ji.i
443 ; 8. C, 13 Common Bench B., 443, 444 ; S. C, 76 J%. C. L.
B., 443).
Some very old cases, of more or less interest, are referred to in
Bacon's Abridgment, illustrating certain principles in bottomry

transactions. One
was this: The plaintiff entered into a
case
penal bond of bottomry to pay forty pounds per month for fifty
pounds the ship was to go from Holland to the Spanish Islands,
;
and so to return for England; but if she perished, the defendant

was to lose his fifty pounds. The ship went accordingly to the
Spanish Islands, took in Moors at Africk, and upon that occasion
went to Barbadoes, and then perished at sea. The plaintiff being
sued on the bond and penalty, sought relief in equity, pretending
that the deviation was of necessity but his bill was dismissed,
;
saving as to the penalty.

Another case was the following : J. S. entered into a bottomry
bond, whereby he bound himself, in consideration of £400, as able
to perform the voyage within six months, or at the six months' end
to pay the £400. and forty pounds premium, in case the vessel
arrived safe, and was not lost in the voyage and it fell out that ;
J. S. never went the voyage, whereby his bond became forfeited,

and he preferred a bill to be relieved ; and in, regard to the ship,
she lay all along in the port of London, so that the defendant ran
no hazard of losing his principal. The Lord Keeper decreed that
he should lose the premium of forty pounds, and be contented
with his ordinary interest (3 BacorHsAh., tit. Merchant and Mer-
ehamdise, 601).
A reference to a few more modem English cases will conclude
this chapter, and, essentially, the consideration of the subject of
maritime loans.
A vessel chartered by the appellants put into a port in Cuba,
;
796 J'AW OF MARITIME LOAN$,
in distress ; the master attempted unsuccessfully to raise money

and the agents of the appellants in Cuba then telegraphed to the
appellants in Liverpool, who dinected that money should be
obtained on bottomry. The telegram of the agents contained a
direction to the appellants to see the owner, but they did not do
so,though the owner was then living in the same town as the
appellant. The owner was at the time insolvent. The British
Privy Council held, affirming the j.Uidgment of the Ênglish Admi-
ralty Court, that, under the eiroumsitances, notice to the owner was
absolutely necessary to the validity of the bond- TJntil he ha?
been jadicially declared' insolvent,, the owner is the person to
receive notice of the intention to raise money on bottomry, in
order to enable him to raise money for rescuing his vessel from
her difficulties at amount of premium than the maritime
a smaller
1 remiura would necessarily entail. In case the owner has been
judicially declared insolvent, then the court hold that the owner-
ship in the vessel is transferred to other persons, to whom notice
must then be given {The Pomam^, 23 Z. T, B., M. S., 12 ; and
vide 2 AHhany Law Jownal, .258).
A master, being in want of funds and credit in a foreign port,
executed an agreement with centain parties for advances to be mad^
to him. This agreement contained the follow;ing conditions; That
the master should draw a bill of exchange to cover such advances
upon the consignees of the ship at the port to which he was pro-
ceeding ; that, within thirty-five days after ,his arrival at such port,
he should discharge and pay such bill of exchange and all interest
which might have become due uponit, together with the money paid
by way of premium for effecting an insurance of the vessel during
i
the intended voyage, and until the vessel had taken her departure
from the port to which she was proceeding on a further outward
voyage, as also interest on all such money as last aforesaid at the
rate of nine pounds per cent per annum from the time of payment
up to the time of such repayment and, for securing the repayment of
;
all such sums and interest, the master bound, pledged, mortgaged
and hypothecated the ship, with her tackle and appurtenances.

The English Court of Admiralty held that such an agreement was
not an instrument which can be enforced in a court of admiralty;
and, further, decided that the instrument was not a bottomry bond,
for there was no maritime risk, an ingredient essential to its vitality
{Thelrkdomitable, 5 Jw., JF. S., 632 ; S. C, SwaUy's E., 4M).

sonE poofvs m BOtTOMRT. 797
"Wlieê it appeared that at a foreign port, at which the mastei

had taken in necessary supplies, the owner of the vessel had si
jecognized agent within the possible and probable knowledge of
the person making the advance, the Court of Admiralty of Eng-
land held that the bottomry bond given for such advance was void
(The Faithful, 31 L. J. Adm., 81). And the same court held in
a subsequent case that the master, before giving a bottomry bond
on ship, freight and Cargo, is bound, as against owners of cargo, to
communicate both with the owners of the ship and the shippejs or
eonsignees of the cargo, when such communication is, under all the
circumstances, reasonably practicable; but not otherwise {The
Olivia, Lush. E., ^84; S. C, 31 L. J. Adm., 137). And in still
a later ease the same court held that it is as much the duty of a
master to give or attempt to give notice to the owners of a cargo
as to the owners of the ship before executing a bottomry bond {The
Mwmak, 37 L. J. Adm,., 41 ; amd vide The Hamburg, 9 Jur., N.
8., 440; X?. a, 32 L. J. Adm., 161).
In the last case referred to, it was held that the validity of a bot-
tomry bond taken in a foreign port upon a foreign ship, freight and
cargo, the owners of the cargo being English, and the ship and
cargo being proceeded against in England, is to be governed by
the general maritime law, and not by the lex loci contractus, or the
law of the country to which the vessel belongs {The Hamburg, 2
Moore's P- C. C, W. S., 289 ; S. C, 33 Z. J. Adm., 116).
It can hardly be necessary to pursue the subject further ; and
with some extracts from the celebrated Digests and Code of Jus-
tinian, and the equally celebrated French ordinance of Louis XIV,
concerning the Marine, the whole discussion df the law relating to
Maritime Loans will be concluded.
:
798 LAW OF MASITIME LOANS.
CHAPTER LXIY.
TRANSLATION OF THE SECOND TITLE OF THE TWENTY-SECOND BOOK OF

THE DIGESTS, AND OF THE TWENTY-THIRD TITLE OF THE FOUETH
BOOK OP THE CODE, EACH ENTITLED DE NA0TICO FOENOEB TRANS-
LATION OF THE FIFTH TITLE OF THE THIRD BOOK OF THE FRENCH
ORDINANCE CONCERNING THE MARINE.
The provisions of the Digest entitled " Of Maritime Loan " are
substantially as follows
Law I. What is called maritime money is money which is car-
ried beyond the sea ; if it should be consumed in the same place it
will not be mwritvme. But it is to be considered whether the
merchandise purchased with that money has been purchased with
that view. And it is material that it should be carried at the peril
of the creditor. Then the money becomes maritime.
Law II. Labeo says If there is nobody on the part of the bor-
:
rower on whom process can be served to compel him to pay the

maritime money, the fact must be proved by testimony, and it
will be equivalent to a legal demand.
Law III. In a maritime loan, the lender undertakes the risk
frqjn theday that the vessel is appointed to sail.
Law IV. It matters not whether the maritime money may have
been taken without being at the risk of the lender, or whether it
ceased to be at the risk of the creditor after the expiration of the
term or performance of the condition. In either of these cases no'
more than the common legal interest shall be due and never in ;
the first case, nor in the second, from the time that the risk ceases
shall goods pledged or hypothecated be retained for a higher
interest.
§ 1. The daily reward of a servant, sent for the purpose of

recovering the maritime money, shall not exceed double the lawful
interest of one per cent a month. If the stipiilation of interest to
be paid after the risk expires does not amount to the whole legal
interest, it may be supplied by another stipulation for the servant's
labor.
Law V. The price or compensation of risk is whatever is given
over and above the money received on a penal condition not actu-
gaming or wagering
ally existing, provided the contract is not of a
species,from which the condition is to arise, as, if you manumit,
you do not do such a thing, if I shall not recover from, sichiess,
;
PRINCIPLES OF THE ROMAN LAW. 799
etc. But there is no doubt, where money is lent to a fisherman to

purchase fishing tackle, to be repaid mease he shall oatoh fish, or to
a prize fighter to fit himself for the combat, to be repaid in case he
shall come off conqvieror.
§ 1. But in all these cases a single contract, without a stipu-
lation, is sufiicient to sanction the obligation.
Law YI. A person haviilg lent money at maritime risk has
taken in pledge some goods shipped on board of the vessel. And,
further, in case there should not be sufficient to satisfy the whole
debt, other goods, shipped on board of other vessels already
pignorated to other lenders, are pledged to him, in case there
should be any residue. It is now asked whether, if the ship out of
which he was to have been paid the whole be lost, it is to the dam-
age of the lender, or whether he has yet a recourse on the residue
of-what was shipped on other vessels ? I answer : in general, the
diminution of the pledge is to the damage of the debtor and not
of the creditor. But where maritime money is thus given, the
lender has no right to demand his money ; unless the vessel
arrives in safety at the stipulated time, the obligation of the

debt is extinguished by the non-existence of the condition, and,
therefore, the lien on the pledge is also gone, even on those that
are not lost. If the vessel is lost within the time fixed for the
end of the risk, the condition of the stipulation is extinguished
no ground for prosecuting a lien on the pledges
therefore, there is
that were shipped on board of other vessels. At what time, then,
is the creditor to be admitted, to prosecute such liens ? Only
when the condition of the obligation is actually in existence, and
in case the pledge should be lost by another accident, or should
sell for less than the amount of the money due, or if the vessel
should be lost after the time when she ceases to be at the risk of
the lender.
Law VII. Maritime interest is due on certain contracts agree-
ably to the stipulation. For, if I lend ten pieces on the condition
that if the ship a/rrimes safely I shall receive the principal with a
certain interest, then I may receive the principal with the interest
stipulated.
Law YIII. Servius says that the penalty of a marine loan can-
not be demanded if the creditor had it in his power to receive his
money within the limited time.

Law IX. If the penalty of a maritime loan has been stipulated
: :
800 LAW OF MARirnUE LOANS.
for in the usual manner, although on the day of payment nobody

sliouM be alive that might be said to owe the money, yet the pen-
alty is forfeited in the same manner as if the debtor had left an
heir.
The provisions of the Code of Justinian upon the same subject
are substantially as follows
Law I. It is clear that maritime money, lent at the risk of the
-creditor, bears an interest diflFerent from that of the legal rate,
only until the arrival of the vessel at the port of its destination.
Law II. If you say that yon have lent money on condition that
it should ie retv/rned to you in the Holy City, and if you do not
-declare that you undertook the certain dangers of the seas, there
is no doubt that you cannot recover any more -than common legal
interest for money so lent.
Law you declare to have lent money at maritime interest
III. If
on this condition, that you should he paid after the a/rrvoal at
Salo of a vessel which the debtor represented to he hovmd to Africa,
so that you only undertook the risk of the voyage to Africa and ;
by the fault of the debtor the ship was seized for contraband
goods on board of her, the reason of the law will not permit that
the damage of the loss of 'the goods, which happened not by the
stress of weather, but by the greedy avarice and insolent behavior
of the debtor, should fall upon you.
Law IV. But the loss of maritime money, lent at the peril of
the debtor, before the vessel reaches the place of her destination,
must not fall upon the debtor. Otherwise, without an agreement of
this kind, the debtor should not be freed from his engagement,
even by the misfortune of shipwreck.
ExTEAOT. —Êx Julio Paulo.

Maritime money, in consideration of the risk which the lender
runs, may, while the vessel is at sea, have an indefinite interest.
The provisions of the French ordinance concerning the marine,
entitled Des Oonbrats a la grosse Adventwre ou a retour de voy-
age, are as follows
Aeticle I. All contracts of ma/riti/me loan, otherwise called of
gross adventure, or of return voyage, may be made either by a
under a private signature.
•public notary or
Aeticle II. Money maybe given upon the body and keel of the
ship, and upon her rigging, tackle, provisions and outfits, jointly
PRINCIPLES OF TBE FRENCH LAW. 801
or separately, and upon all and any part of her lading, for one
whole voyage or for a time limited.
Aetiole III. "We forhid all persons to take up, at maritime risk,
upon their ships or goods on board thereof, more than their real
value, under pain of being obliged, in case of fraud, to pay the
whole sums, notwithstanding the vessel should be lost or taken.
Article IV. We also forbid them, under the like penalty, to
take up any money upon the freight for the voyage tp be made,
or upon the profit expected on the lading, or even upon the sea-
men's wages, except it be in the presence and with the consent; of
the master, and under one-half of tbe aforesaid wages.
Abtiole V. We moreover forbid all persons to advance any
mpney to seamen atmaritime risk upon their wages and voyages,
except it be in the presence and with the consent of the master,
under pain of confiscation of the sums lent, and a fine of fifty
livres.
Aetiole VI. The masters shall be answerable, in their own

names, for the whole amount of the sums taken up by the seamen
with their consent, if they shall exceed one-half of their wages,
and that notwithstanding the loss or capture of the ship. •
Article VII. The ship, her rigging, tackle, apparel and pro
visions,and even the freight, shall be, by privilege, affected for the
payment of the principal and interest of money given upon the
body and keel of the ship for the necessities of the voyage, and
the lading shall be bound for the money borrowed to procure the
same.
Article VIII. Such as give money upon bottomry to a master
without the consent of the owners, if they live in the place, shall
have no security nor privilege upon the ship, any further than
the part that the master may have in the ship and freight, though
the money was borrowed for fitting out the ship or for buying
provisions.
Article IX. However, the parts of such of the owners as
refuse to furnish their proportions for fitting out the vessel shall
be affected for the money lent to the master for the equipment
and provisions of the ship.
Article X. Creditors for money formerly due on such things,
and left outstanding by renewal or continuation of the contract,
shall not come in competition with those that have actually lent
for the last voyage.
lOX
Aeticle XI. All contracts of maritime loan shall be void after

tlieentire loss of the effects upon which the money was lent, if
that happened by accident, and within the times and places therein
expressed.
Aeticle XII. Ifothing shall be reported acoident that is occa-
sioned by the internal defect of the things, themselves, or by the

fault bf the owners, master or merchant, except it be otherwise
provided by the contract.
Aeticle XIII. If the time of the risk be not specified by the
contract, it shah last, as to the ship, her rigging, tackle and provi-
sions, from the day she sets sail until she arrives at her intended
port and is moored at the wharf; and as to the goods, it shall last
from the moment they are laden on board the ship, or lighter to be
carried thither, until they are unladen or carriedon shore.
Aeticle XIY. A
person lading goods, and taking up money
upon them at maritime risk, shall not be acquitted by the loss of
the ship and lading, unless he makes it appear that he had then on
his own account effects to the value of the sum borrowed.
Aeticle XY. However, if the person that has taken money at
maritime risk make it appear that he could not ship goods to the
value of the sum borrowed, the contract, in case of loss, shall be
diminished in proportion to the value of the and shall
effects laden,
only subsist on the overplus upon which the owner shall pay the
;
interest, according to the contract rate of the place where the con-
tract is made, until the actual payment of the principal. And if
the ship arrive in safety, there shall be due only the legal interest,
and not the maritime profit of thie overplus of the effects put on
board.
Aeticle XYI. Those that give money at maritime risk shall con-
tribute, in discharge of the borrower, to general average, such as
ransoms, compositions, jettisons, masts and ropes cut away for the
common safety of the ship and goods ; but not for simple average
or particular damages that may happen, except there be some
agreement to the contrary.
Aeticle XYII. However, in case of shipwreck, the contract of,
maritime loan shall be reduced to the value of the effects that are
saved.
AEaapLE XYIII. If there be a contract of maritime loan and an
upon the same cargo, the lender shall be preferred to the
insuraric'e
IMPOBTANCE OF THE ANCIENT CODES. 803
insurers, upon tte effects preserved from shipwreck, for Ms capital,

and no further.
Such are substantially the provisions of the pertinent title of the
Digest, the Code of Justinian, and the famous ordinance of Louis
XIV of France, upon the subject of Maritime Loans, and they are
regarded of sufBcient importance to be inserted in this place. The
Code of Justinian is a digest of the usages and legislation of many
centuries, and is really the great monument of the reign of the
Byzantine Emperor. The work of compiling the Roman law,
embodied in this Code, was entrusted to seventeen commissioners,
of whom Tribonian was the head. The work was finished about
A. D. 533. The compilation consisted of extracts from all the
writers who were regarded as of any authority, and the entire Code
was published in fifty books, and altogether formed the body of the
Eoman law, and now known Although this Code,
as the civil law.
and even oblivion,
soon after its first publication, fell into neglect
about the year 1130 it suddenly grew into vogue and authority,
and was introduced into several nations, since which it has occa-
sioned a mighty inundation of voluminous comments, and is every-
where consulted as a precedent for legislation, and considered by

the courts as an authority of more or less weight. In some
countries of Europe, the civil law is at present cultivated'
with great success, and it is, in some cases, formally recognized
as competent authority. In England and in this country this
Code has never been adopted, as such, and it has been less inter-
fused with the system of laws which has grown up in these
countries than in most countries of Europe, and yet the princi-
ples .of the Eoman law are often referred to by eminent English
and American judges and writers, and the decisions of our courts
are often influenced by reason of such recognition and reference ;
and more especially are the Admiralty Courts of these countries

governed by the principles of modern civil law, that is, by the
usages of modern nations in the more extended relations growing
out of commercial enterprise, but still having as a basis the rules
of the Roman law, so far as applicable. Hence the convenience
of having the provisions of the Justinian "Code, relating to mari-
time loans, at hand when the subject is examined.
And in respect to the marine ordinances of the French king,
Louis XIV, it may be said that they are even more important
tha:fi the Code of Justinian. The civilians and lawyers, of every
804 L-AW OF MARITIME WANS.
period since their promulgation, have avowed the greatest admira-

wisdom and justice. They form a part of the present
tion of their
Maritime Code of Europe, and are acknowledged as authority hy
all ; at least, they have obtained the respect of every maritime
State. In this country, it has been judicially declared that these
ordinances and' the commentaries on them have been received
with great respect in the courts of England and the United States ;
not as conveying any authority in themselves, but as evidence of
the general marine law. Where they are contradicted by judi-
cial decisions in our own country, they, of course, are not to be
regarded but, on points which have not been decided, they are
;
worthy of great consideration, and are so regarded by our courts.

No apology is, therefore, necessary for their insertion in this
place and with them the discussion of the subject of maritime
;
loans may be closed, and the consideration of the entire subjects

of this treatise appropriately concluded.
ALPHABETICAL DTDEX.
A.
ACTION, PAOB.
in cases of usmy, when it accrues . . .65, 66, 69, 70, 73, 73, 75, 76, 393, 400
431-430, 433, 450-453
first process in 451
proper parties to 451
venue in 451
declaration or complaint in 453-458
plea or answer in 458-463
amendment of pleadings in 463, 464
compounding and settling of 465
evidence in 436, 433, 437, 466-473
trial of. 466
verdict in 473
judgment and execution in 478, 474
for property transferred on usurious consideration 433-434
in equity in cases of usury 485-449
accrues to pledgor, when 544, 550, 676
pledgee, when 561-567, 675, 680
pawnee may recover damages when in, 561
have on pledged paper, when 576-580
ADUIRALTY,
jurisdiction of courts of, in bottomry cases 783-785
AGENT,
bonus to, not usurious, when. . .^ 138, 156-173
usurious,when 338, 339
not liable for usury, when 471
may pledge property of principal, when 531, 533, 569
execute bottomry contracts, when 736, 737
•
Vide Factob.
AGREEMENT,
to be usurious, must be corrupt . . . 103-110, 140, 175-181, 335, 338-333, 370
how construed, when usury alleged 107, 366
void for usury, when 66, 71, 73, 75, 85, 110, 875, et seq.
not made usurious after inception Ill, 133, 136
held not usurious, for want of loan Ill, 114, 115, 194, 374, 363, 367
not usurious, per m, when 123, 124, 1,47
806 ALPSABETICAL INDEX.
AGREEMENT— Continued. page.
to pay commissions not usurious, when 130-141
old debt not usurious, wlien 141-143
exchange not usurious, when 143-155
not usurious unless loan to be returned 172-204
for loan of chattels 345-254
held to be usurious, when 366, 381, 386, 388, 391
inference of innocence in, when 366
Vide CONTKACT.
ALABAMA,
history of usury in 54
usury laws in force in 54, 73
decisions of the courts in respect to usuiy in . . . 98, 130, 147, 313, 360, 396
400, 406, 407, 409, 410, 425, 447, 448, 473
decisions of the courts in respect to pledges in 524, 535, 599, 607, 620
625, 631
AMENDMENTS,
of proceedings in usury cases 463, 464
AMERICA,
history of usury in 49-56, 59, 60
statutes against usury in 64r-78
history of pledges in 493, 493
ANNUITY,
not usurious, when 98, 101, 188-204
cases of, held not to be usurious 188-204
definition of 303
life' insurance will not vitiate, when 304
cases of alleged, held to be usurious 394r-296
ANTEDATE,
of instrument, when held not to be usurious 256, 362, 263, 266
to be usurious 298, 299
ARABS,
the subject of pledges among 483,484
ARIZONA,
statutes in respect to pawnbrokers in 699-701
ARKANSAS,
history of usury in 54, 55
usury laws in force in 54, 55, 76
decisions of the courts in respect to usury in 447, 471
pledges in 575
ASSIGNEE,
may not plead usury, when 418
Vide Negotiable Paper.
what passes to, under banloiipt laws '
560, 561
title and rights under bankrupt laws 560-565
ATHENS,
ancient laws of, in respect to interest and usury , 38, 42, 43
ALPBABETICAL INDEX. 807
ATTORNEY, PASB.
fees of, in security for loan, not usurious, when 141, 173, 271, 273
usurious, when 832
AUCTION,
pledges to be sold at, when 583-601
AVERAGE,
who must contribute to 749
general, lender in bottomiy cases must contribute to 750, 770, 788
B.
BACON, LORD FRANCIS, ^
opinion of, in respect to interest and usury 35, 57

BAILMENT,
pledge, a species of 494,496
BANK NOTES,
sale of, at par, not usury, when 357, 258, 306
BANKRUPT LAWS,
operation of, in cases of pledge 656, 668
rights of pledgee under 656-659, 663, 665, 667, 668
what passes to assignee under 560, 561
, are acts of bankruptcy under 661
contracts exempt from 661, 663
assignee's title under 662, 663
rights under 663,665
act in force in the United States 665
pledge in fraud of, not valid 667
BANKS,
may charge for exchange, when 144-155
take discount, when 153, 155, 156
BENTHAM, JEREMY,
opinion of, concerning usury laws 57, 58, 63
BILL OP EXCHANGE,
acceptor's charge for prompt payment, not usurious, whe n 255, 356
BILL OP LADING,
evidence of factor's right to pledge property, when 528, 529
BONUS,
taken on loan not usurious, when 156-172
usurious,, when 328, 339
BORROWER,
may interpose defense of usury, when 403-421
parties under, may plead usury, when 404, 410
who is regarded such under usury laws 438, 439
competent witness to prove usury, when 466-468
on bottomry, rules in respect to 746, 747
where and how to pay loan 756-758
when personally liable 759-761, 785, 786
808 ALPBABETIOAL INDEX.
BOTTOMRY, woii.
what are contracts of 178, 387
coirtracts of, not usurious, when 173-178,718
nature of contract of. . . . 176, 77, 279, 717, 718, 739, 746, 750, 751, 75S, 756
760, 796
cases of, held to be usurious 286-288
conditions of contracts of 717, 718, 753, 7,67, 776-779
contract of, must be subject to risk or hazard 718, 745
differs from partnership and insurance '. . 719, 730
form of contract of 730,721,748,776-779,785
promissory note held not to be contract of , 781
master may bind shipowner by, when 728-736, 788-790, 793, 796
'
whatis a foreign portin respect to 733, 733, 735, 783
owner of vessel may execute contract of, when. 736-740, 742
contract of, not affected by other security, when -.
739, 788
difference between contracts of, and respondentia 739, 740, 776
contract of, binds ship and earnings, when 739
cargo of ship may be pledged, when by 740, 741
what bound by contract of 742, 743
rules in respect to average under contract of 749
contract of, when void 751, 759,761-766,786
money on, where and how to be paid 756-758
limitation of su^t for 758
contract of, to be promptly enforced 771
may be renewed, when 771
requisites of 776-779
effect of personal liability clause in 777
construction of 778-782, 787, 789
remedy on 782-785, 787, 792
may be good in part and bad in part 786, 789
waived, when 787
effect of 789, 790
fraud does not vitiate, when 791, 792
BROKER,
commissions by, not usury, when 157-173
usury, when 339-335
may pledge property of principal, when ; . . . 538, 539
BBOKERAGB,
charge for, not usury, when 157-172
usury, when 329-335
BROUGHAM, LORD HBNRT,
opinion of, concerning usury laws 58
c.
CALIFORNIA,
history of usury m 55
usury laws in force in 76
decisions of the courts in respect to pledges 'in, 508, 543,'S59, 580, 600, 630
633, 647, 674, 703
statute in respect to pawnbrokers in 7dl-703
A.LPHABETICAL INDEX. 809
CAPTAIN. VUe Master.
CARE, i-A™-
different degrees of, defined , 633, 634
CARGO,
may be hypothecated by captain, when 734, 740-743, 791
by owner of vessel, when 787, 738
CERTIFICATE,
of deposit and trust usurious, when 314-318
CHAMPERTY, .
avoids a pledge, when 501-503
CHATTELS,
loan of, not usurious, when 345-354,366,367
sale of, usurious, when 399-801, 303, 305, 307, 808
CHECKS,
cannot be impeached for usury, when 400
CHINA,
the subject cif pledges in 483
CHOSE IN ACTION,
sale of, not usury, when 116-130, 258-360
'face of not paid, no proof of usury, when 260, 361, 366-368
sale of, held usurious, When 306,307,309-313
exchange of, usurious, when 319-833
void for usury, when .-
381, 886, 388, 389, 391
usurious, good in hands of horia fide holder, when 381, 38?, 893
who is' fete fide holder of 386, 387, 391
the subject of pledge, when 500-503
how pledged 508
CIVIL LAW,
.importance of, to present legislation w 803
C0LLATBRA.L8,
not usurious because accrued interest on, not allowed, when 362
to renew usurious contract, effect of 398-403
to Secure bottomry aIlowed,'when 779, 788
COMMISSIONS,
not usurious, when Ill, 116-118, 128, 130-141, 270, 371
held tobe Usurious, when '..">'.
— 338-385
COMPLAINT,
form and sufficiency of, in usury cases . . 453-458
COMPOUNDING ACTION,
in case ot qaitam, for usury 465
COMPOUND INTEREST,
may be talien, when 74, 340-343
CONFLICT OF LAWS,
in respect to usury, rules relating to 79-93, 373
what statute applies in usury cases 79-93, 372
rules to determine the matter of 79, ef aeq.
laws of nations relating to - 79-83

102
810 ALFMABMTICAL INDEX.
CONNECTICUT, pagb.
history of usury 1q 51
laws in force, relating to interest in 68, 69
decisions of the courts in respect to usury in . . 109, 134-126, 141, 173, 311
333, 253, 305, 340, 891, 396, 398, 406, 410, 471
decisions of the courts in respect to pledges in 576, 630
CONSIDERATION,
of usurious note, when valid as to indorsee 3S0
CONSTRUCTION,
question for the court, when 106
of usury law, to he strict , 117
rules for, in usury cases 373, 380
CONTRACT,
void for usury, when 66, 71, 73, 75, 85, 100, 375, et seq.
to be usurious, must be corrupt . . 103-110, 140, 175-181, 325, 228-333, 370
not made usurious after inception Ill, 133, 126
not usurious for want of a loan, when 111, 114, 115, 194, 374, 363, 367
usurious per se, when 123, 124, 147
to pay commissions not usurious, when 130-141
old debt not usurious, when 141-143
a condition of loan not usurious, svhen 143
to pay exchange not usurious, when 143-155
not usurious, unless loan to be returned . . . , 173, 204
of maritime, favored in law 178
held to be usurious, when 366, 381, 386, 388,391
to do a forbidden act, void 394
Vide Contract of Pawn or Pledge, btC.
CONTRACT OF PAWN OR PLEDGE,

definition and nature of 493, 497
'.
requisites of 497,506-508,512,513
what may be the subject of 497-503
cannot be enforced, when 508
delivery the essence of 596,207,520
Vide Pawn ok PiiEDOB.
CORPORATIONS,
not permitted to plead usury, wnen 67, 69, 73, 413, 413, 417
COURTS,
how to construe usury laws 373, 376, 380
CREDIT,
not ustiry, when
sale of, '.
114-130
exchange of, not usury, when 257, 358
CREDITORS,
note made to defraud, usurious, when 359
assignee for benefit, cannot plead usury, when 413
CRIME,
when usury is 474-478
of usury, when complete 477, 478
alpbabeticaij index. 811
CUSTOM, PAflB.
will not protect usury, wlien 207, 377
D.
DAMAGES,
stipulated, not usury, when 214
recoverable in cases of pledge, when 643-647
DEATH OF PAETIBS,
effect of, in cases of pledge 668-670
DECLARATION,
form and suflBciency of, in usury cases 452-458
DECREE,
import of, in bottomry cases 785
DEFENSE,
of usury, when permitted 67-77
must be strictly proved 123
not permitted, when 401
to whom available '.
403-417
how to be set up 458-463
evidence to sustain 470-472
DEFINITIONS,
of interest and usury 35, 208
of pawnor pledge 481,493-497,537
of loan 93,96, 99,100,111, 117,120,303,364,365
of lien 496, 497
of maintenance 501, et seg.
of gross adventure 717, 719
DELAWARE,
statute in force in respect to usury in 52, 69, 70
decisions of the courts in respect to usury in 467
DELIVERy,
requisite in cases of pledge 496, 500, 506
may be actual or symbolical 496, 507-516
is the essence of the contract of pledge 506, 507, 520
may be actual or constructive 507-516
what is sufficient in case of pledge 509-514
when defective in case of pledge .^
514r-516
need not be simultaneous with contract of pledge, when 516
DEPOSIT,
loan on condition of, not usurious, when 154, 155
certificate of, usuripi^g, when 314^318
required as a condition of loan, when usurious 384, 335
DISCOUNTS,
not usurious, when 153, 155, 156
usurious, when 332-334,338-345,855
812 ALPHABETICAL INDEX.
DOCTRINE OF CASES, pam.

summary of, in respect to usary 383-371
E.
ENGLAND,
history of usury in 37, 38, 45-49
late usury laws in 49, 59
history of pledges in 485-488
pawnbroking in 485-492
EQUITABLE BELIEP,
in cases of usury, when proper 435-449
general rules in respect to 435-437, 439
complaint in. 458-464
EQUITY,
jurisdiction of courts of, in usury cases . . 443-444, 446
proceedings in cases of pledge in courts of " 647-655
ESTOPPEL,
when applied in cases of usury 413, 417-421
EVIDENCE,
rules in respect to, in cases of usury 148, 360-363, 346, 336, 433, 437
466-472,478
EXCHANGE,
contract for, not iisurious,,wlien 139, 130, 143-155, 221-329
reason why not usunofls , 145
held usurious, when 146 277, 335-338, 340, 358, 359
principles, applicable to 149, ISO
EXECUTION,
when may be levied on pledged property : 534-538
EXPENSES PAID,
held not to be usurious, when 133, 133,136
usurious, when 327
EXTINGUISHMENT,
of pledge, how eflfected 550-556
F.
FACT,
mistake of, saves contract from usury, when 239-339
FACTOR,
cannot pledge property of principal at common law 521, 522-525
pledge by, valid by statute, when 525-530, 699
FLORIDA,
statute in force, in respect to usury in 76
decisions of the courts in respect to usury in 228, 338, 354
pledges in 60S
ALPRASETIOAL INDEX. SIS
FORBEARANCE, , page.
applies only incases of loan of money 845
/^ of a diebt is usuric^s, Tvlieni, â 364
FOREIGN PORTS,
what regarded such in bottomry cases| 733, 788, 785
FRANCE,
hfttory of pledges in ; 48S
FREIGHT,
not the subject of pledge on bottomry, when 743, 743
what included in pledge of 780,781
may be pledged by master of vessel, when 792
FRENCH ORDINANCE,
extracts from, in respect to maritime loans 800-803
importance of, in relation to present jurisprudence 803, 804
FUNGIBLES,
how to be disposed of when pledged 587
G.
GEORGIA,
statute in force, in respect to uusury in 76
decisions of the courts in respect to usury in . . 380, 390, 396,437, 480, 483
pledges in 508,619
statute in respect to pledges in 704, 70S
GIFT,
no usury in case of . . . 289, 240, 470, 471
no evidence of usury, when 262, 263
GOODS,
sale of, usurious, when 103, 111-123
taken as interest, when usurious , 299-301, 305, 307, 308
GRANTEE,
of usurious mortgagor may plead usury, when 404r-409, 412, 414
not a borrower under usury laws 438
GROSS ADVENTURE,
definition of the term 717, 719
nature and requisites of contract of 731, 722, 755, 756
QROTIUS,
opinion of, relating to usury 59
GUARANTOR,
of usurious security may plead usury, when 406
GUARANTY,
recovery oa, limited, when 119, 130, 125, 129
on assignment of chose in action not usury, when 258-260
H.
HAZAED, PAOB.
exempts contract from usury, when 96-101, 172-304, 219, 267'
principal must be in, to exempt loan from usury 173, 181, 304, 219
in cases of bottomry 173-178
respondentia .'
174^177
post obit 178-184
annuity 184, 185
partnership , 185-188
interest in nature of penalty 204r-217
loan of chattels 346-354
usury in cases of 384r-297
essential in maritime loans 716
nature of, in bottomry contracts 717
HINDOOS,
the contract of pledge aaiong 485
HYPOTHECATION,
master of vessel may make, when 784, 735
rules in respect to ; 767
Vide Mastbr.
I.
ILLINOIb,
statute in force in respect to usury in 75
decisions by the courts in respect to usury in, 141, 804, 305, 380, 392, 40?
426, 529, 449, 461
pledges in, 511,519,583,597, 621,670
INCORPOEEAL THINGS,
may be pledged, when 500, 501, 503
INDIANA,
history of usury in , 56
decisions of the courts in respect to usury in. . . 114, 141, 391, 400, 408, 410
427, 469, 471, 478
pledges in, 580, 609, 610, 625, 646, 675
676, 680, 684
INDIANS,
pledge by, not valid, when 491,492, 691-693
INDICTMENT,
form and sufficiency of, in case of usury 478
INFANTS,
cannot make a valid pledge, when 530, 531, 533
may act as agent, when 531
Vide MiNOKS.
INSUEANCE',
similarity of, to maritime loan 719, 720
maritime loan
effect of, in case of 725
of mariners' wages, not competent, when 74S
ALPHABETICAL INDEX. 815
INTENT, PAGE,
essential element in case of. usury, 92, 96, 103-110, 135, 181, 225, 328, 276
370
must be corrupt to constitute usury. . 103,110,140,175-181,225, 238,232
370
usury always a question of 161
wanting in cases of mistake 329-239
must be corrupt in both parties to constitute usury 333, 234, 338
criminal, inferred, when 275
implied innocence of, when 366
INTEREST,
definition of the word 35
opinions in respect to the morality of taking 36-40
statutes in relation to 65-78, 372
legal rates of, in the United States 70, 77
compound, may be taken, when 74, 240
rate of, fixed for national banks 77
none recoverable except provided by law 78
conflict of laws in respect to 79-93
rate of, must be illegal to be usurious 101-103, 194, 368
must be intended to be above legal rate, to be usurious 103-110
how to be computed 148, 376, 277, 351, 352
not usurious, when taken by way of penalty s 204-317
semi-annual and the like not usurious 353, 344
predicated only upon a loan of money, when 245
when above legal rates by mistake of law, usurious 375, 278, 381-384
held usurious in certain cases of alleged hazard 384^397
sea risk 381-388
partnership 388, 389
post obit 390
annuity 390-396
sale of salary 396, 397
penalty 397
held usurious in certain cases of payment in advance 307, 398
ante-dated instrument 398, 899, 307, 308
. .
goods advanced instead of money, 399-301

^ 303, 305
-transfer of stock 309-313
certificate of trust and deposit . . . 314r-318
sale of drafts and post notes 318, 323
exchange of obligations 319-333
extra, reserved in separate contract, usurious, when 355-359
usurious, may be recovered back, when 431-430
no action for, unless actually paid 450
maritime, what and when payable 718, 719
general rules in respect to 731-725
common, whgn payable in case of maritime loan 724r-726, 757, 788
Vide Mabitime Interest.

INTERPLEADER, paob.
competent to determine right to a pledge, when 670-673
INTOXICATING LIQUORS,
pledges given for, void, when 693, 093
IOWA,
statute in force in respect to usury in 74, 75
decisions of the courts in respect to usury in . . 240, 314, 848, 854, 355, 392
416, 421, 429, 448, 462, 474
pledges in. . . . 516, 580,595, 612, 614
J.
JEWS,
laws of, in respect to interest and usury 36, 37
the subject of pledges among 482, 483
JUDGMENT,
form and effect of, in usury cases . . 473, 474
JURY,
question for, in cases of usury 93, 98, 100, 105, 116, 124, 135, 187, 146
235,228,229,235
K.
KANSAS,
pledges in 705
KENT,
the late Chancellor, views of, concerning usury laws 41-43, 63-64
KENTUCKY,
statute in force in respect to usury in. ... : 25, 76
decisions of the courts in respect to usury in 98, 297, 303, 335, 346, 355
891, 400-^2, 441
pledges in, 509, 545, 558, 610, 648, 674
I-
LAND,
cannot be usury in sale of, when 111-114, 309
usury declared on sale of, when 304, 305, 348, 361, 863, 471
LAW,
ignorance of, no excuse for usury, 103, 104, 106, 108, 109, 275, 278, 381-384
against usury to be strictly construed 117
of a foreign State must.be proved, when 379
object of, defined 687
Vide Lbx Loci.
LAW OF NATIONS,
applies in cases of usury, when 79-82
ALPMABBTICAL INDEX. 817
LENDER, PASB,
^
in bottomry, must bear the sea risks '719, 739, 749, 751
presumptions in favor of 720-733

rules in respect to ; 739-785, 741
must inquire as to necessity of loan, when 741, 745
rights of, when vessel is lost 747
proof of, in matter of claim 748
contribution by 749, 750
bears no risks but of sea 751, 753
be borne by
losses to 753, 755
remedy of 761, 763, 764-766, 783-785, 787, 793
lien of 766-776, 793, 797
may be subrogated as to other claims, when 771, 793
LEX LOCI,
when governs in cases of alleged usury 79-9C
Vide CoNPLicT OF Laws.
LIEN,
the word defined 496, 497
subject of a pledge, when 538
difference between, and pledge. 568
iu bottomry cases, nature and extent of 763, 766-776
priority of . . 768-774, 792
when lost 771, 775
not to be implied, when 775, 776'
LIFE ANNUITY. Vide Anntjitt.
LIFE ASSURANCE,
does not vitiate annuity, when 304
LOAN,
can be no usury without 92-96, 98, 114, 115, 136, 368, 367
definition of 93, 96, 99, 100, 111, 117, 130, 303, 364, 365
cases in which it was wanting to constitute usury 111^143, 194, 874
of stock, when not usurious ,...,, 317-331
of chattels, when not usurious , . 345-254
Vide Mabitimb Loan.
LOCKE, JOHN,
opinion of, concerning usury 57
LOCUS SOLUTIONIS,
controls in usury cases, when 79-90
LOUISIANA,
pledges in 580, 597, 610, 618, 676
statutes in respect to pledges in 705-710
LUNATICS,
cannot make a valid pledge ,..,.,,,,,.,, , 530, 531
103
818 ALPBABETICAL INDEX.
M.
MAINE, , PABB.
statute in force in respect to interest in 51
decisions of the courts in respect to usury in 343, 388, 391, 397
pledges in, 505, 519, 576, 599, 621, 681, 695
statutes in respect to pledges in 694, 695
MAINTENANCE,
what is, and how it affects a pledge 501-503
MAEINERS,
may not procure insurance of their wages, when 743
Hen of, for wages, rules in respect to 767
MARITIME CONTRACTS,
favored by courts 178
Vide BoTTOMBT, Mabitimb Loajsts.
MARITIME INTEREST,
when and how payable 718, 719, 723, 724, 747, 754, 767
general rules in respect to 731-735, 745
not payable in-case of loss, when 733
rate of. 732, 733
ceases, when 734
whether, must be stipulated in contract 727
MARITIME LOANS,
antiquity of ; 715
texts of the Roman law in respect to 715, 716
contract for, nature and requisites of, 717,' 718-731, 744, 746, 750, 751, 760
776, 796
interest on, when payable 718, 719, 754
differs from partnership, how. 719, 734
similarity of, to insurance j 719, 730
in case of, be borne by lender
risks to 719, 739, 749, 751-753
form of contract 730, 731, 776-77,9, 785
maritime interest on, rules in respect to : 721-725, 745
common interest on, when payable 724r-726, 757, 758, 763
effect of insurance in case of 725
maritime interest presumed in case of, when 737
the proper parties to . . . -.
738
power of master of vessel to make 738-736, 739, 740, 789-791, 793, 796
no other ship's officer, but master, can make 731
by master, rules in respect to 733-735, 738
owner of vessel may make 736-740
payment of, when preferred 737
difference between bottomry and respondentia in respect to 739, 740
cargo of vessel bound for, when 740, 741
what may be pledged for 742
what bound by pledges for 742, 767
what may be risked on 743, 744
how to be appropriated 744, 747, 748, 790, 791
.
ALPMABETICAL INDEX. 819

MARITIME LOANS— CoNTnnjBD. , txbis.
- where may be made 748
the voyage in respect to 752-755, 769
where and how to be paid 756-758, 787
contract for, when rendered void 759-766, 786
lien of lender in case of 766-776
contract for, when void for usury 776
construction of contracts for 778-783, 787, 789
remedy on contracts for 783-785, 787, 795
contract for, good in part and bad in part, when 786, 789
effect of contract for _
789, 790
Vide BoTTOMKT.
MARITIME MONEY,
what is so regarded t 715, 743
how to be appropriated 744
when due, and where and how paid 753, 754, 756-766
MARITIME RISK,
essential in bottomry cases 716, 744, 745
nature of, in bottomry cases 717
must be borne by lender in bottomry cases 719, 739
when commences and ends in bottomry cases 753, 758
. MARRIED WOMEN,
may not make a pledge, when 531
act as agent, when 521, 531, 583
MARYLAND,
history of usury in ; 53
statute in force in respect to usury in , 68, 71
decisions of the courts in respect to usury in, 336, 338, 344, 339, 887, 890
897, 414, 460
pledges in . . 597, 599, 633, 667, 681
MASSACHUSETTS,
history of usury in 50, 59, 60
statute in respect to interest in , 68 50,
decisions of the courts in respect to usury in, 97, 109, 156,311, 286,375, 340
843, 347, 349, 888, 404, 405, 436, 488-430, 461, 468, 469, 471
decisions of the courts in respect to pledges in, 505, 510-512, 517, 530, 534
581, 583, 541, 545, 554-555, 565, 574, 581, 596-599, 605
614, 635, 633, 646, 647, 653, 667, 670, 675, 680, 681
statutes in force in respect to pledges in 697-699
MASTER,
may bind shipowner by bottomry, when, 738-786, 739, 740, 789, 790, 791
793, 796
powers of, when appointed by American consul 737
rules in respect to loans by 733, 734
may hypothecate vessel, when 734, 785, 798, 798
cannot pledge ship to buy cargo 738
may hypothecate cargo, when 740, 792
personally liable for loan, when. , 791
}l^^s lien on, vessel, -syhen ,,.,,,..,,,,,,..,, , , , , ,
, . 792
820 .
ALPHABETICAL INDEX.
MATERIAL MEN, pagb.
have lien on vessel, when 769
MICHIGAN,
history of usuiy in 52
pledges in 611, 680
statute in force in respect to pledges in 710
MINNESOTA,
history of usury in .'.
S5
decisions of the courts in respect to pledges in 580, 613
MINOR,
validity of pledge by 520,521
may act as agent, when 521, 533
MISSISSIPPI,
decisions of the courts in respect to usury in. . 305, 313, 314, 388, 396, 408
pledges in 547,613,631
MISSOURI,
decisions of the courts in respect to usury in 349, 380, 388, 410, 480
MISTAKE,
of fact excuse for usury, when 106-108, 225, 329-339
cases of, held to be within the rule as to usury 339-339
when presumed in cases of alleged usury 233
when held not an excuse for usury 375-384
of law, effect of, in respect to usury 275
MONTS DE PI^Ti,
nature of, and when established 488, 489
MORTGAGE,
foreclosure of usurious one, effect of 393-395
what is so regarded 481, 497
considered an executed contract, when 511
MORTGAGEE,
may plead usury, when 404-409, 413, 414
MOSES,
laws of, in respect to usury 36, 37
NATIONAL BANKS,
law of Congress in respect to 77
subject to State law against usury 91, 93
.'
decisions of the courts in respect to 91, 92
ALFHABETICAL INDEX. 821
NEBRASKA, PAeu.
NEGOTIABLE PAPER,
when, cannot be impeached for usury 70, 71, 77
sale of, not usurious, when 116, 119-130, 140, 231-329, 283, 383
ante-dated, not usurious, when , 131, 133,156
assignee of, limited in his recovery, when 119, 130, 135, 339
exchange of, not usurious, when 139, 130, 333-339
given to take up usurious note, valid, when 334
containing interest not due, not usm'ious, when 356
discounting of, not usurious, when -. . . . 365, 366, 368, 269
subject of sale, when 283, 388
sale of, held usurious, when 338-340, 343-345
discounting of, held usurious, when 338-345
sale of stolen one, usurious, when 353-354
exchange of, held usurious, when 358,359
when once free from usury, always good 370, 371, 389
free from usury in hands of bona fide holder of, when. . . 381, 386, 387, 388
391, 393
when pledged, how to be disposed of by pledgee 576-581, 586, 594
NEVADA,
decision of the court in respect to pledge in 649
NEW HAMPSHIRE,
statute in force in respect to interest in 69
decisions of the courts in respect to usiuy in. . . 336, 279, 408, 409, 437, 460
pledges in, 509, 519, 607, 610, 647, 696
697
NEW JERSEY,
statute in force in respect to usury in .'
69
decisions of the courts in respect to usury in, 171, 305, 336, 401, 448, 464, 469
pledges in 503, 531, 674
NEW YORK,
statutes in force in respect to usury in 65-68
decisions of the courts in respect to usury in . . 43, 64, 81, 83, 85-90, 92, 94
95, 104, 107, 112, 114^133, 139-138, 143, 148-156, 159-170, 186, 187
331-237, 333-236, 238-240, 343, 344, 347-354, 256-274, 277-383,388,297
299, 302, 306, 307, 312, 317-333, 335-838, 333, 384r-338, 340-344,347-354
356-359, 363, 374, 384-389, 394-403, 404, 431-435, 431-434, 437-446
458-460, 463-464, 468-473, 476, 477
NEW YOEK—Continued. paoe.
decisions of tlie courts in respect to pledges in 494, 50d-503, 508, 509
513-516, 520, 524, 529, 533-539, 545, 547, 551,554, 557-561,575, 577-579
583-594, 598-601, 603, 609, 613-615, 619, 620, 622, 625, 626, 628, 631-683
641, 643, 646, 648-650, 653, 654, 655, 668, 670, 671-673, 676, 678, 679, 684
statutes in force in respect to pledge by factor in 528, 529
lin 691-694
NORTH CAROLINA,
decisions of tlie courts in respect to usury in. . . . 98, 343, 303, 339, 354, 389
426,456,457,471,472
pledges in 508, 519, 607, 647, 648
0.
OFFENSE,
when usury is such 474r-480
when complete in case of usury 477, 478
OHIO,
decisions of the courts in respect to usury in, 144, 145, 237, 318, 393, 438, 461
. pledges in 681
OREGON,
OWNERS OF VESSELS,
bound by acts of captain, when , . . . 738-786
may execute bottomry bonds, when 736-740
P.
PARTNERS,
transactions between, not usurious, ^hen 185-188
usurious,when 288, 289
may not pledge the firm property, when 527
PAWN. Vide Pledge.

PAWNBROKER,
regulations concerning, in China 483
England 486-488, 634, 684-691, 693
sign of, and its origin 489-493
regulations concerning, in the American States 492, 493, 691-711
who is regarded such 496
responsibilities of 686-641
statutes in force in respect to, in England 684-691
New York 691-694
Maine 694,695
PAWNBROKER—CONTDTOBD. paob.
statutes in force in respect to, in Massachusetts 697, 698
Arizona 699-701
California 701-703
Kansas 705
Ohio 710,711
PAWNEE. Vide Pledgee.
PAWNOR. Vide Pledgor.
PAYMENTS,
must be actually made of extra interest to complete offense of usury,
. when 96-101,173
when contract for prompt, avoids usuiy 204-317
held not to avoid usury 345, 346
bonus to extend time of, when usurious 354, 855, 860
PENAL STATUTES,
what are, and how construed 873,380
PENALTY,
interest in nature of, not usurious, when QQ, 101, 304^317
held to be usurious, when 397
in cases of usury, and the action therefor 435, 436, 438
PENNSYLVANIA,
statute in force in respect tousury iu 70
880, 403, 435, 478
pledges in 534, 541, 563, 575, 596
598, 613-614, 631, 639, 650, 679, 680
statutes in force in respect to pledges in 711
PENSIONS,
rules in respect to pledging of 498-500
PLACE OP PAYMENT,
controls, in usury cases, when 79-90
PLACE OF PERFORMANCE,
controls in usury cases, when 79-90
PLEA,
necessary averments of, in usury cases 458-463
PLEDGE,
definition of. 481, 493^97,537
history of contract of 483-493
not valid without delivery 496, 500, 506, 519, 530, 678, 679-683, 696
requisites of the contract of 497, 506-508, 513, 513, 677, 678, 679, 695
what may be the subject of
'.
497-503, 511, 676

what claim may be secured by 504, 506, 510
must be something in esse , 506, 510
possession of, must be continued 517-530
may be waived, and how , 519, 530, 554^556
the person of the pledgor 530-533
PLEDGE—CONTINUBD. PAOB.
title of the pledgor in 533-539, 557, 681
"
pledgee in 583, 557-561, 683
cannot be taken on execution at common law CB4
may be taken on execution by statute, when 584-538, 696
broker may contract, when 538, 697
stipulation that it shall be irredeemable, not valid 589, 540, 594
redemption of 539-541, 546-550
obligations of pledgor in respect to 541-544
rights of pledgor in 544^550
extinguishment of, how effected 550-556
ostensible sale may be such, when 560, 680, 681
rights of pledgee in, before redemption of 561-581
when fraudulently made, effect of 561
, pledgee may use when
it, 56S-564
repledge it, when 567-S75, 588
hold increase of, when 575, 576
dispose of, when 576-601
collect negotiable paper and other securities, when, 576-581
586, 594, 674, 683, 684
sell it, when 578, 580, 582-601, 674, 683, 696
rights of pledgee in, after maturity of claim 581-607
sale of, how to be made 588-601
effect of, illegal consideration of 597, 598, 653, 653
rights of parties when it consists of several things 600, 604, 605
pledgee may not purchase it at sale of, when 601
rights of pledgee in, after sale of 601-607
disposition of proceeds of sale of. 603-605
surplus on sale of 605
pledgee must account for increase of, when 607, 608, 633
liability of pledgee in respect to 608-615, 618, 643-655
pledgee must account for face of negotiable paper, when . . . 609-612, 619
duties aijd obligations of pledgee in respect to 615-627
on terimimation of 627-641
remedies of pledgor in respect to 633-636, 643-655
operation of bankrupt laws in cases of 655-668
effect of death of parties to 668-670
means of determining right to 670-673
miscellaneous points in respect to > 678-684
where set-off against, not allowed 684
statutory provisions in respect to, in the American States-. 684-713
statutes in respect to, in New York 691-693
Maine 694r-696
New Hampshire 696
Vermont t, 697
Massachusetts 697-699
Arizona 699-701
California 701-703
Georgia 704, 705
ALPMABETICAL INDEX. 825
PLEDGE— CONTINUBD. PiOE.
Statutes in respect to, in Kansas 705
Louisiana 705-710
Michigan 710
Ohio 710,711
Pennsylvania 711
Wisconsin 711, 712
what may be the subject of, in cases of maritime loans 742
extent of, in cases of maritime loan 743, 767
PLEDGEE,
wlio competent for such 496
what claim may be secured by 504-506
may hold pledge for expenses, when 505
must take possession of pledge 506, 681, 683, 696
must continue his possession of the pledge 517-580
does not lose his lien by redelivery of the pledge, when 517-519
waives his lien to the pledge, when 519, 530, 554-556
has only a special property in the pledge 633, 557-561, 616, 683
may redeliver pledge to his own pledgor, when 539, 565, 629
loses his lien on pledge, when 555, 606, 675
rights of, in pledge before maturity of claim.- 561-581, 679
may use pledge, when 562-564
repledge the property, when 567'-575, 588, 597
hold increase of pledge, when 575, 576
dispose of pledge, when 576-601
collect paper securities, when 576-581, 674, 688, 684
sell the pledge, when , 578, 580, 382-601, 674, 683
sale of the pledge by, how conducted \... 562-601
may enforce the personal obligation, when 595, 599, 605-607
rights of, in pledge when claim illegal 597, 598, 652, 653
may employ pledgor to sell pledge, when 598, 599
enforce his claim in equity, when 599
rights of, where several things are pledged 600
is responsible for agent's acts, when 600
must not purchase pledge on sale of, when 601, 614
rights of, in pledge after sale of 601-607
how proceeds of pledge to be disposed of by 603-605
must account for profits of pledge, when 607, 608, 633
liability of, in respect to the pledge 608-615, 618, 642, 655
must account for face of negotiable paper, when 609-613, 618, 619
duties and obligations' of, in respect to the pledge 615-627
liability of, when pledge stolen 617, 632-627, 638, 639
duties of, after termination of pledge 637-641
presumptions and evidence in respect tp 638, 641
how he may be affected by bankrupt laws 655-668
effect of death of, in respect to the pledge 670
means for determining to whom to deliver pledge 670-673
may bring trover for the pledge, when 675
104
826 ALPBABBTICAL INDEX.
PLEDGOR,
who may be such 496, 520-533, 679
may not be, when
lunatics 520
power of minors to be such 520, 521, 538
married women as such 521, 531, 533
factors cannot be, at common law 521-525, 532
may be, by statute, when 525-530
trustees may not be, when 530, 531
title of, to the property pledged 533-539, 557, 681
may redeem the pledge, when 539-541, 546-550
obligations of, in respect to the pledge 541-544, 605
warranty of title to pledge by, when 541, 542
estopped from setting up subsequently acquired title, when 542
must reimburse pledgee for expenses, when 542-544
rights of, in the property pledged. . . . , 544r-550
may when
dispose of his interest in pledge, 544, 545
has an action fbr conversion of pledge, when 545
right of, to redeem the pledge survives, when 548, 549, 647-670
personally liable on his contract of pledge, when, 595, 599, 605-607, 610
612
is entitled to surplus on sale of pledge, when 600
waives irregularity in sale of pledge, when 601
remedy of, against pledgee 612-614, 631, 633-636, 643-655
his action at law in respect to the pledge 643-647
proceedings in equity by, in respect to the pledge 647-655
may have the pledged article decreed to him, when 649
effect of the death of, in respect to the pledge 699, 670
POST OBITS,
not usurious, when 101, 178-184
nature and description of 178
PEACTICE,
rules of, in usury cases 318, 845, 450-47f:
PRESUMPTION,
what, in cases of usury 85-87, 260-268, 276, 468, 4ffi»
PRIVIES,
may set up usury, when 408, 406, 408, 413
PROMISSORY NOTE,
insufficiency of, as a bottomry contract, when 721
does not invalidate bottomry contract, when 788
may be secured by bottomry bond, when 794, 795
Yide Negotiable Papbb.
Q.
QXn TAM ACTION,
in cases of usury, when it accrues 451
declaration or complaint in 456-458
plea or answer in 458-463
compounding of 465
QUI TAM ACTION—CONTIN0BD. rAsu.
in cases of usury, evidence in 466-i73
verdict in '.
, 472
when default in, will be opened 473, 473
judgment and execution in 473, 474
E.
REDEMPTION,
of pledge, rules in respect to 539-541, 546-550
REMEDIAL STATUTES,
what are, and how to be construed 378
RENT CHARGE,
held not to be usurious, when 189, 191, 203
nature and description of 203, 389
REPLEVIN,
when the action of, will lie in usury cases 433, 434
RESPONDENTIA,
contracts of, not usurious, when 174-177
nature of the contract of 175, 177
lenders on, not Uable for salvage on 175, 176
Vide BoTTOMKY.
RHODE ISLAND,
statutes in force in respect to interest in 51, 68
RISKS,
rules in respect to, in usury cases . 286-388, 393, 296, 297
Vide Bottomry, Makitimb Loan, etc.
•
ROMAN DIGEST,
extracts from, in respect to maritime loans 798-800
provisions of the Code Justinian in respect to maritime loans 800
importance of, in respect to present jurisprudence 803
ROMANS,
history of pledges among 485
ROME,
rules in respect to interest and usury in the ancient empire and repub-
lic of 38,39,43, 63
S.
SALARY,
sale of, usurious, when 396, 397
nominally paid on loan usurious, when 334, 335
SALE,
held not tainted with usury, when, 92-95, 111-130, 188-204, 258-260, 310, 364
held usurious, when ; 102, 301, 302, 304, 305, 307-313
of annuities held not usurious, when 188-304
of chose in action not usurious, when 218-260
of pledge, when upheld 578,580,582,601
828 ALPHABMTWAL INDEX.
SALVAGE, PA9B.
lenders on bottomry not liable for, when 175, 176, 749, 750
SEAMEN,
may borrow money on freight of vessel, when 743
on^hip for wages', when
lien of, 771
Vide Maeineks.
SEA RISK,
cases of, held to be usurious 386-388
SECURITIES,
when sale of depreciated, not usurious ^ 331-339
taken for less than face of, no proof of usury, when 360-361
ante-dating of, no proof of usury, when 363, 363, 266, 398, 299
given for claims bought at a discount not usurious, when 270, 271
if they include expense of collecting of, not usurious, when 371, 272
exchange of, not usurious, when 373, 373
given for a loan to pay usurious debt not usurious, when 273, 274
exchange of, held usurious, when 306, 307, 309-313, 319-323, 340
renewal of usurious, still tainted 331, 338, 396, 400, 403
one of two given for the illegal interest, both usurious, when 368
if originally free from taint they always remain so, 370, 371, 389, 398, 401, 402
collateral, effect of usury upon 393, 403
though usurious, may be enforced, when 396, 402
SERVICES,
charge for, in case of loaij, not usurious, when 130-141, 358-360
held to be usurious, when 328
SHIP,
effect of loss of, in bottomry cases 761-766
lien on, in bottomry cases '
762-766
Vide BoTTOMST, Maritimb Loaks, etc
SOUTH CAROLINA,
decisions of the courts in respect to usury in, 93, 94, 304, 313, 340, 345, 348, 411
pledges in 524, 545
STATUTES,
in force in respect to interest and usury in the American States 65-78
conflict of, in respect to usury 79-93, 372
rules to determine which shaU apply 79-93, 372
against usury, how construed 3t3-93, 373
distinction between remedial and penal 373
when not retroactive in respect to usury 880
against usury held to be penal, when 409
when usury is held to be a crime under 475, 476
STOCKS,
transfer of, held to be usurious, when 103, 301-303, 309-313, 314, 318
361,362,365
not usurious, when 102, 317-231
pledge of, how made 507-509, 513
STOLEN PAPER, paoj,.
sale of, held to be usurious, when- 353-354
STOPPAGE IN TRANSITU,
of goods pledged, rules in respect to 566, 567
STRANGER TO USURIOUS SECURITY,

cannot interpose defense of usury, when 403, 405, 407, 410, 417
SURETY,
may set up defense of usury, when 404, 409
not allowed defense of usury, when 413, 417
T.
TENNESSEE,
pledges in 520, 556, 621, 653
TEXAS,
usury in
statute in force in respect to 55, 76
pledges in 594
THEFT,
sale of negotiable paper got by, when usurious 352-354
effect of, as against pledgee 617, 623-627, 638, 639
TITLE,
nature of, of pledgor in property pledged 533-539, 557, 681
.
pledgee in property pledged . . '. 533, 557-561, 616, 683

TORTS,
caimotbe the subject of pledge 503
TRANSITU,
right to stop property in, that is pledged 566, 567
TROVER,
action of, in cases of usury 430-484
maintainable against pledgee, when. . . 612-614, 631, 633, 685, 636, 642-647
TRUST,
certificates of, usurious, when 314-817
TRUSTEE,
cannot pledge trust property, when 530, 531
TURKS,
the subject of pledges among 484
TJ.
UNCURRENT MONET,
sale of, not usurious, when 257, 358, 264
held usurious, when 306, 314, 354
UNITED STATES, Vide Ambbica.
USAGE,
held no protection for usury, when 307, 277, 806
USURER, PAOI,.
cannot plead usury himself, when 410, 411
USURY,
definition or meaning of 35, 208
spirit of 35
opinions respecting the practice of. 36-40, 43, 65
general history of » 37, 38, 41-56
taking of, denounced 40, 41
policy of the laws against 56, 105
arguments and opinions in respect to laws against 57-64
statutes in force against, in the United States 64-78
not recognized by the common law 64, 65
action for, rules in respect to. ; 65, 66, 69, 70, 72, 73, 75, 76, 392, 400
held to be a crime, when '
67, 68, 71
connot be pleaded by corporations, when 67, 69, 72
how pleaded as a defense. . ; '''1, 73, 458-43
rules in respect to, as applied to national banks 77, 91, 92
conflict of laws in respect to 79-92, 372
presumptions in cases of 85-87, 258, 260, 263, 276, 468, 469
none in case of bona fide sale, when 92, 95, 111-130, 209
constituents of. 92-110, 113, 194, 216
can be none without a loan 92-96, 98, 114, 115, 194, 374, 363, 367
contract to return loan 96-101, 367
can be none unless illegal interest taken or reserved 101-103, 194, 216
268
corrupt intent, 103-110,140,175-181,225,228,232
370
rules applicable to , 110, 111
transaptions held not to be tainted with 111-274
for want of loan 111-172
must be proved
strictly , 123, 356, 357, 469
between original parties 129, 363
none on exchange of securities, when 129, 180, 272, 273
contracts for service, when 130-141
where expenses incurred, when 133, 133, 136-141
money paid to negotiate loan, when 138
old debt secured with loan, when 141-143
none where second contract the condition of the loan, when 143
charge for exchange is not, when 143-155
none in banks discounting notes, when 153, 155, 156
bonus to agent, when 156-173
where loan may not be returned, when 172-204
principal is put in hazard, when 172-204
none in bottomry and respondentia contracts, when 173-178
post obits 178-184
annuities 184, 185, 188-304
partnership transactions, when 185-188 ^
none where interest is in nature of penalty, when, 204r-317
usage will not protect, when 307
ALPBABETICAL INDEX. 831
USURY—CoNTrNUED. • -
page
none in transfers of stock, when 102, 217-321
securities, when -221-229
none in cases of mistake, when 229-239
gift, when 237, 240
compound interest, when 240-248
semi-annual interest and the like 243, 244
loan of chattels, when 245-254, 366
none where acceptor of bill takes commission for prompt payment, 255, 256
security is ante-dated, when 256, 262, 263, 266
uncurrentmoney when
is sold, 257, 258, 264
not to be presumed, when 258
none on sale of chose in action, when 258-260
not proved, that full face of security not paid .'. . 260, 261, 266-268
collecting collaterals, and using money, not, when 262
not presumed by when
gift, 262, 368, 368, 269
none on discount of note, when 265, 266
purchase of claim at discount, when . . ^ 370, 371
securing attorney's commissions, when g71, 273
security for loan to pay usurious debt, when 373, 274
transactions held to be tainted with 275-362.
in cases of alleged mistake 276-384
hazard 284-397
sea risk 286-288
partnership 288, 289
post obit 390
annuity 290-296
sale of salary 396, 297
penalty 297
interest inadvance 397, 298
ante-dating instrument : 298, 299
goods advanced 299-301, 308, 805, 307, 808, 382
exchange of stocks 301-303, 309-313, 327
sale of lauds 304, 305, 361, 362
hiring to service 305
sale of uncurrent money 306, 314, 354
certificate of trust and deposit 814-318
sale of drafts 318
exchange of obligations 319-328, 840, 358, 359
sale of post notes 328
payment of something beside money 324^328
charge for brokerage and commissions 329-335
payment of double discount ,
832-334
charge for exchange 385-388
discounting paper 338-345
charge for prompt payment 345, 346
new security tainted with, when 346-349, 388
i(ma fide holder of security not affected by, when. 349, 850, 381, 388, 392
. .
held to be, in case of wrong calculation of time, when 351, 352

renewal of security, wben 852
832 ALPHABETICAL INVEX.
USURY—CONTIHTJBD. • ^*™-
held to be in case of sale of stolen paper, 352-354
when
contract to delay collection, When
pay same interest as lender pays,
when • 354,355
extend payment on note, when 354

355, 360
interest,
pay more than conventional
when 335
receive lender's note at discount 355
held to be, in respect to contracts to pay extra interest, when 355-359
note made to defraud creditors, when. ..^ 359

contract to purchase debt against lender, when 360
summary of the doctrine of the cases in respect to 363-371
laws against, how construed 872-380

when penal and when remedial 374, 409
not retroactive, when 380

effect of, on security tainted with it 381-393
when security rendered void by 381, 386
new security not tainted with, when 388-393
security free from, always so •
389, 398-400
effect of, on security collateral to usurious debt 393-403
contract affected by, be reformed, when
may 896-398
effect of judgment on instrument tainted with 399-403
the defense of, to an action 403-431
when parties are estopped from the allegation of 413, 417-431
the action for money paid in case of 431-430
property transferred in case of. 430-434
equitable relief in cases of.- 435-449
practice in actions in respect to 450-474
pleadings in actions for 453-464
compounding actions for , 465
competency of witnesses in actions for 466-468
verdict and judgments in cases of 473-474
in respect to, as a crime 474r-478
when maritime contract void for 776
USURY LAWS,
how construed 373-380
apply only at time contract made '.
. 437
V.
VERDICT,
form of, in usury cases 472
VERMONT,
decisions of the courts in respect to usury in . . 170, 254, 325, 833, 392, 396
410, 437, 439
pledges in 500, 597, 607
statute in force in respect to pledges in „
697
VIRGINIA, PASB.
decisions of tlie courts in respect to usury in. . . 109, 126, 127, 156, 172, 302
203, 212, 313, 236, 290, 312, 313, 336, 383, 344, 391, 400, 471
courts in respect to pledges in 504, 648
VOYAGE,
•
wliat constitutes, in bottomry cases 752^754, 770
effect of variation of 755
"W.
WAGERS,
held not to be usurious, when 185
WAIVER,
of pledge, when 519, 530, 554r-556
WEST VIRGINIA,
WISCONSIN,
history of usury in ".
55
402, 410, 436, 430, 447, 458, 465
pledges in, 579, 601, 611, 612, 649, 677
statute in force in respect to pledges in 711, 712
WITNESSES,
competency of, in usury cases 466-468
105

(1873) A Treatise On The Law of Usury, Pawns or Pledges and Maritime Loans

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I

Cornell University Law Library

The School of Law of Cornell University

By his Wife and Daughter

A. M. BOARDMAN and ELLEN D. WILLIAMS

3 1924 018 849 798

The original of tiiis book is in

tine Cornell University Library.

There are no known copyright restrictions in

the United States on the use of the text.

THE ABGUS COMPANT,

The following treatise has been prepared under an impression

parts of the American Union. So long as usury laws exist, it is

of the utmost importance that they bdj understood. There is not

or discussing the policy of usury laws, without any attempt to

In the State of Pennsylvania, the effect of usury in an instrumeut

is merely to defeat the collection of the usurious interest. In a

case, referred to and examined in this work, the plaintiff sought to

foreclose a mortgage made to secure $43,200, with legal interest,

the amount unpaid on the mortgage was $42,682.87, but that, in

fact, the mortgage was given to secure the payment of a loan at a

rate of interest exceeding that established by law, and that, by

$25,799.24. The question was fairly presented and litigated,

of the law is simply to deprive the party of the right to collect

rect understanding of them is of great importance to the com-

affirmed that few subjects connected with the commerce of the

tained. Here, again, we are without the aid of a single American

So, also, the subject of maritime loans is of marked interest

especially to the members of the legal profession practicing in the

great commercial centers of our country. It is true that the sub-

ject has been discussed in works heretofore published ; but a con-

should be newly presented.

clearly defined, the statutes in force in the several States relating

to interest succinctly stated, and the principal authorities upon

sidered, and the doctrine of the cases accurately stated ; thereby

which may arise. Part II consists of 233 pages, in which the

to a pawh or pledge, their rights, obligations and liabilities, and

ing to bottomry and respondentia; and the doctrine of the

the law relating to the important subjects considered ; and to this

import, so that they may be readily comprehended. The subjects

of the work may be regarded as somewhat cognate, and as neither

is sufficiently prolific of itself to furnish material for a book of

in one volume, and thus produce a book of proper dimensions for

value of a book, I have given to the work a full and complete,

never safe to rely upon-them without consulting the cases. This,

works upon the subjects discussed, but where I have availed

OF THE LAW OF USURY

Practice Condemned — At Present, it is Approved 35

History of Usury in the Colonies and in the American States 49

The Statutes in force in respect to Interest and Usury in the remaining

Arjsansas, Texas, California, Oregon, Nevada, Nebraska, Kansas, Mis-

souri, Iowa, Minnesota, Wisconsin, Illinois, Indiana and Kentucky —

Of the particular Statutes to be applied in cases of alleged Usury — Conlflict

The Constituents of Usury — There must be a Loan, express or implied —

Constituents of Usury — Illegal Interest must be reserved or taken — There

Transactions not tainted by Usury — Certain rules applicable to Usury —

commissions on making Loan — Loans upon condition that debt of third

Transactions not usurious — Compensation taken on account of exchange —

Transactions not usurious — Bonus to agents for negotiating Loan 156

to be returned at all events — Bottomry contracts — Contracts in the form

Transactions not usurious — Loan of chattels 245

Transactions not usurious — Miscellaneous cases held to be free from the

purchase of negotiable paper — Mistake in construction of statute 274